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Full text of "Investigation of concentration of economic power. Hearings before the Temporary National Economic Committee, Congress of the United States, Seventy-fifth Congress, third Session [-Seventy-sixth Congress, third Session] pursuant to Public Resolution no. 113 (Seventy-fifth Congress) authorizing and directing a select committee to make a full and complete study and investigation with respect to the concentration of economic power in, and financial control over, production of goods and services .."

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seventYtSixth congress 


Public Resolution No. 113 
(Seventy-fifth Congress) 


t»ART 16 


OCTOBER 9, 10, 11, 12, 13, AND 16, 19S« 

Printed for the use of the Temporary National Economic Committee 

124491 WASHINGTON : 1940 



f Created pursuant to Public Res. 113, 75th Cong.) 

J0SE3PH C. O'MAHONBY, Senator from Wyoming, Chairman 

HATTON W. SUMNERS, Representative from Texas, Vice Chairman 

WILLIAM H. KING, Senator from Utah 

WILLIAM E. BORAH, Senator from Idaho 

CLYDE WILLIAMS, Representative from Missouri 

B. CARROLL REECE, Representative from Tennessee 

THURMAN W. ARNOLD, Assistant Attorney General 

♦WENDELL BERGE, Special Assistant to the Attorney General 

Representing the Department of Justice 

JEROME N. FRANK, Chairman 

•LEON HENDERSON, Commissioner 

Representing the Securities and Exchange Commission 

GARLAND S. FERGUSON, Commissioner 

EWIN L. DAVIS, Commissioner Ipl 

Representing the Federal Trade Commission 


ISADOR LUBI3V, Commissioner of Labor Statistics 
•A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics mi, CO 

Representing the Department of Labor 

JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel _^ 

Representing the Department of the Treasury (Ci \ 

Representing the Department of Commerce i^ 

JAMES R. BRACKETT, Executive Secretary ' ^^ 









Testimony of — Page 

Anderson, H. H., vice president, Sliell Oil Co., Inc., St. Louis, 

Missouri , 8987-9022 

Craft, Arnold W., manager, Craft Oil Co., Avoca, Pennsylvania— 8893-8907 
Crouthamel, Henry A., executive secretary, Maryland Association 

of Petroleum Retailers, Inc., Baltimore, Maryland 8984-8949 

Culver, Irving B., manager. National Oil & Supply Co., Newark, 

New Jersey . z. '.. 8907-8914 

• Hadlick, Paul E., secretary. National Oil Marketers Association, 

Washington, D. C 8837-8891 

Hall, Edwin S., senior counsel. Standard Oil Co. of New Jersey, 

New York City 9090-9118 

Hartley, L. A., secretary. Petroleum Retailers Association, Kansas 

City, Missouri 9023-9066 

Hewett, A. W., president. Petroleum Retailers Association, 

Kansas City, Missouri 9023-9066 

Horton, James A., chief examiner. Federal Trade Commission, 

Washington, D. C ^ 9128-9146 

Ingram, George B., president, New Deal Oil Co., Canton, Ohio__ 8951-«987 
Klein, Harry T., general counsel. The Texas Co., New York City— 9118-9126 

Orvis, Eugene L., attorney, Jersey City, New Jersey— 9067-9088 

Ruark, B. W., general manager. Motor and Equipment Whole- 
salers' Association, Chicago, Illinois 8920-8933 

Scott, Lester S., manager, Loughborough Oil Co., Washington, 

D. C 8915-8920 

Statement of — 

Beedy, Carroll L., attorney, Washington, D. C— • 9147-9149 

Farish, W. S., president. Standard Oil Co. (New Jersey), New 
York City 9089-9090 

Independent marketers 8837 

Costs of marketing and the difficulties of independent marketers 8839 

Divorcement of marketing recommended for integrated companies 8852 

Transportation rates 8860 

Divorcement of marketing endorsed by other associations of independ- 
ents — - 8861 

Effect of proration on the independent 8863 

Inducements offered jobber to become exclusive dealer 8868 

Jobber net margin on gasoline _ 8871 

Price structure of regular gasoline in various representative cities 8873 

Competition between integrated companies in getting exclusive control 

over marketer ._— 8877 

Basing point system in the petroleum industry 8880 

Question of establishment of uniform gasoline price for whole United 

States . 8882 

Integrated company versus the independent . 8885 

Efforts of integrated companies to discourage competitioh from independ- 
ent brands of Pennsylvania oil , ; 8894 

Divorcement of marketing recommended 8898 

Difficulties of an independent in marketing products 8907 

Absorption of retail outlets by major oil companies disclosed by mar- 
keting survey , 8915 




trol of marketing outlet 8922 

Recommendation offered to aid the Independent 8932 

Refusal of certain major companies to sell gas and oils to "split" dealer 

in Baltimore market 8934 

Discrimination, through price differential, between exclusive and "split" 

dealer and its effect on price to the consumer 8936 

Jobber contracts, margins, and posted prices : j__ 8952 

Contribution by the industry in employment and purchasing power 8990 

Interest and objectives of Petroleum Retailers Association 9Q^ 

Incomes received by filling station operators in Kansas City area 9027 

Handling of gasoline as "loss-leader" item by retailer 9030 

Difficulty of protecting interests of hoth retailer and consumer 9031 

The "blockade" method and other practices : 9040 

Four types of retail outlets 9049 

Effect of major company domination of the industry upon the consumer— 9052 

Tank-wagon price 9055 

Suggestions to the Committee : 9064 

Transportation practices 9068 

Proposed transportation agreement ^ 9070 

Question as to the legality of the proposed agreement 9090 

Federal Trade Commission report on marketing practices in the industry- 9127 
Questionable practices in the marketing of petroleum products and 

motor accessories— 9129 

Preferential discounts allowed commercial buyers • 9134 

Price differences based on volume or trade classifications — 5135 

Secret rebates 9136 

Leasing of service stations at alleged low and inadequate rentals 9136 

Granting of courtesy or credit card service to 100 percent stations 

or accounts only 9137 

Use of tying and exclusive dealing contracts 9137 

Retail price fixing in gasoline 9139 

Advertising 9140 

Contracts with motor accessories manufacturers 9140 

Pump and tank equipment as leased, sold, or loaned by marketers 9141 

Exchange or intersale of gasoline by major marketers 9141 

Conclusions of the Federal Trade Commission 9142 

Competitive marketing practices __- ■ 9143 

Schedule and summary of exhibits i V 

Monday, October 9, 1939 8837 

Tuesday, October 10, 1939 8893 

Wednesday, October 11, 1939 8951 

Thursday, October 12, 1939 9023 

Friday, October 13, 1939 9067 

Monday, October 16, 1939 9127 

Appendix . 9151 

Supplemental data 9368 

Index I 


Number and summary of exhibits 

at page 

on page 









Prepared manuscript of Paul E. Hadlick, secretary and 
counsel, National Oil Marketers Association, Washington, 
D. C 

Chart: Price structure of "regular" gasoline as posted by 
Standard Oil Co. (Ohio)— State of Ohio, 1930-1938 

Chart: Price structure of "regular" gasoline as posted by 
Atlantic Refining Co.— Scranton, Pa., 1930-1938 

Chart: Price structure of "regular" gasoline as posted by 
Socony- Vacuum Oil Co., Inc. — Boston, Mass., 1930-1938. 

Chart: Price structure of "regular" gasoline as posted by 
Standard Oil Co. of New Jersey — Washington, D. C, 

Chart: Price structure of "regular" gasoline as posted by 
Continental Oil Co.— Denver, Colorado, 1930-1938 

Chart: Price structure of "regular" gasoline as posted by 
Standard Oil Co. (Indiana) — Des Moines, Iowa, 1930- 

Chart: Price structure of "regular" gasoline as posted by 
Standard OU Co. (Kentucky) — Birmingham, Alabama, 
1930-1938 . 

Chart: Gallons of gasoline one bushel of corn will buy at 
Des Moines, Iowa, 1924-1938 

Chart: Gallons of gasoline 100 lbs. of wool will buy at 
Casper, Wyoming, 1924-1938. 

Chart: Gallons of gasoline 100 lbs. of cotton will buy at 
Houston, Texas, 1924-1938 

Prepared manuscript of Arnold W. Craft, manager. Craft 
Oil Co., Avoca, Pennsylvania 

Prepared manuscript of Irving B. Culver, sales manager. 
National Oil & Supply Co., Newark, New Jersey 

Prepared manuscript of L. S. Scott, Loughborough Oil Co., 
Washington, D. C 

Prepared manuscript of B. W. Ruark, general manager, 
Motor and Equipment Wholesalers Association, Chicago,' 

Appears in Hearings, Part 14, appendix, p. 7676 

Prepared statement of Henry A. Crouthamel, executive 
secretary, Maryland Association of Petroleum Retailers, 
Baltimore, Maryland 

Placard: "Notice to the Public," appearing at fiUing stations 
leased from and selling the products of Shell Oil Co., Inc. - 

Brief submitted to the Federal Trade Commission by the 
National Association of Petroleum Retailers, March, 1935, 
complaining of certain practices existing in the pe- 
troleum industry 

Prepared statement of George B. Ingram, president. New 
Deal Oil Co.j Canton, Ohio 

Letter, dated October 26, 1934, from W. R. Birkmayr, man- 
ager, gasoline division, Pennzoil Co., to New Deal Oil 
Co., with attached gasoline contract between the com- 




























Schedule of Exhibits — Continued 

Number and summary of exhibits 

1232. Bulletin, dated March 28, 1935, from W. R. Birkmayr, man- 

ager, gasoline division. The Pennzoil Co., to all its gaso- 
line distributors in Ohio 

1233. Letter,' dated September 17, 1935, from W. R. Birkmayr, 

manager, gasoline division. The Pennzoil Co., to the 
New Deal Oil Co. advising that company of the auto- 
matic renewal of its gasoline contract 

1234. Letter, dated September 23, 1935, ftom W. R. Birkmayr, 

manager, gasoline division. The Pennzoil Co., to the New 
Deal Oil Co. advising that company of no change in its 
gasoline contract 

1235. Letter, dated September 14, 1936, from W. R. Birkmayr, 

manager, gasoline division. The Pennzoil Co., to the 
New Deal Oil Co. advising that company of the cancella- 
tion- of its gasoline contract on its expiration, and sub- 
mitting a n^w agreement 

1236. Letter, dated February 16, 1937, from W. R. Birkmayr, 

manager, gasoline division, The Pennzoil Co., to the New 
Deal Oil Co. submitting a gasoline price schediile 

1237. Memorandum, dated June 12, 1933, from R. A. Browne, 

sales director, The Pennzoil Co., to branch managers and 
distributors outlining the Ohio marketing policy of the 
Pennzoil Co 

1238. Bulletin, dated July 12, 1933, from W. R. Birkmayr, man- 

ager, gasoline division. The Pennzoil Co., submitting gas- 
oline and kerosene posted price structures 

1239. Bulletin, dated June 12, 1933, from W. R. Birkmayr, man- 

ager, gasoline division. The Pennzoil Co., submitting gas- 
oline posted price structure 

1240. Bulletin, dated July 28, 1933, from W. R. Birkmayr, man- 

ager, gasoline division. The Pennzoil Co., submitting gas- 
oline and kerosene posted price structures 

1241. Bulletin, dated August 8, 1933, from W. R. Birkmayr, man- 

ager, gasoline division. The Pennzoil Co., submitting gas- 
oline and kerosene posted price structures 

1242. Bulletin, dated September 1, 1933, from W. R. Birkmayr, 

manager, gasoline division, The Pennzoil Co., submitting 
gasoline and kerosene posted price structures 

1243. Bulletin, dated September 6, 1933, frbm W. R. Birkmayr, 

manager, gasoline division. The Pennzoil Co., submitting 
gasoline and kerosene posted price structures 

1244. Letter, dated February 28, 1934, from R. A. Browne, sales 

director. The Pennzoil Co., to all branch managers and 
distributors stating the invalidity of prior commercial 
consumer contracts under the N. R. A. Petroleum Code 
and submitting a gasoline and kerosene posted price bulle- 


Price schedule, dated October 12, 1934, from The Pennzoil 

Price schedule, dated November 26, 1934, from The Penn- 
zoil Co 

Letter, dated March 20, 1935, from The Pennzoil Co. to the 
• New Deal Oil Co. announcing an advance in gasoline 
prices effective the following day. 

Letter, dated May 28, 1935, from The Pennzoil Co. to the 
New Deal Oil Co. announcing an advance in gasoline 
price effective the following day 




on page 


























Schedule of Exhibits — Continued 


Number and summary of exhibits 

at page 

on page 















Memorandum, dated November 17, 1934, from R. A. 
Browne, sales director. The Pennzoil Co., to branch man- 
agers and distributors advising of a new price schedule 

Memorandum, dated November 23, 1934, from R. A. 
Browne, sales director. The Pennzoil Co., to distributors 
in Ohio on the subject of gasoline prices. 

Memorandum, dated November 17, 1934, to Pennzoil dealers 
submitting a revised gasoline price schedule 

Gasoline price schedule, dated August 25, 1939, on the 
letterhead of the Standard Oil Co. (Ohio), addressed to 
division managers 

Postcards addressed to the New Deal Oil Co., Canton, Ohio. 

Newspaper clippings of articles on the subject of gasoline 
prices ^ 

Copy of petition, temporary restraining order and final in- 
junction in the case of Railway Oil Stores, Inc. v. Stark 
County Gasoline Dealers Association, et al 

Newspaper clippings on the subject of the suit cited in 
"Exhibit No. 1252." 

Two copies of classified directory of marketers of petroleum 
products in Ohio, showing refinery sources of supply 

Letter, dated June 14, 1934, on the letterhead of The Stand- 
ard Oil Co. (Ohio) to division managers relative to the 
sale of unbranded gasolines at filling stations handling the 
company's branded prodycts 

Letter, dated November 14, 1934, from W. R. Birkmayr, 
manager, gasoline division, The Pennzoil Co., to the New 
Deal Oil Co. outlining the company's policy regarding 
discounts to dealers and submitting a price schedule 

Prepared manuscript of H. H. Anderson, vice president. 
Shell Oil Co., Inc., St. Louis, Missouri ^ 

Chart: Historical Trends — hours worked per week, weekly 
earnings and unit labor cost in the petroleum industry, 

Chart: Recent Trends — Wage, hours and purchasing power 
of wage earners of larger petroleum companies, 1929- 
1938 . 

Chart: Inter-industry comparison of working conditions in 
petroleum, manufacturing and selected large industries, 
1938 : 

Chart: How We Level Employment — an employment in- 
dex, crude runs to stiUs, gasoline and fuel oil demand, 
monthly for 1938 

Chart: Spread of Income — survey of 18 major oil com- 
panies showing distribution of 1937 annual earnings of 
employees as compared to the reported distribution of 
national incomes 

Chart: Survey of unionization in larger oil company 
refineries • 

Table: Inter-branch wages and hours comparisons of re- 
fining, production and pipeline employees for May, 1933 

Prepared statement of A. W. Hewett, president, and L. A. 
Hartley, secretary. Petroleum Retailers Association, 
Kansas City, Missouri s 

"Do's and Don't's bulletin issued by the National Asso- 
ciation of Petroleum Retailers, Ways and Means Com- 
mittee to members of the Association 

































'On file with the Committee. 


Schedule of Exhibits — Contiuued 

Number and summary of exhibits 

at page 

on page 

1267. Letter, dated January 23, 1939, from L.-A. Hartley, secretary 

of the Petroleum Retailers Association, Kansas City, 
Missouri, to Thurman Arnold, Assistant Attorney Gen- 
eral of the United States, regarding a meeting of mem- 
bers of the Petroleum Retailers Association with Wilmer 
R. Schuh, president of the National Association of 

1268. Letter, dated October 11, 1939, from J. C. Denton, vice 

president, Mid-Continent Petroleum Corp., to James R. 
Brackett, secretary of the Committee, enclosing cer- 
tification of authentication of a 
Letter, dated December 12, 1936, signed by H. W. Roe, 
traffic manager, Mid-Continent Petrolieum Corp., ad- 
dressed to J. C. Gutsch, A. F. T. M., Chicago, Rock Js- 
land& Pacific Railway Co., and A. R. Bogan, A. G. F. A., 
Missouri Pacific Lines, regarding rail rates in the Mid- 
Continent area 

1269. Letter, dated October 9, 1939, from J. J. Pelley, president. 

Association of American Railroads, Washington, D. C, 
to James R. Brackett, secretary of the Committee, au- 
thenticating a 
Memorandum, dated January 17, 1935, from J. J. Pelley, 
president. Association of American Railroads, addressed 
to officials of 13 major oil companies outlining a proposed 
traffic agreement 

1270. Letter, dated November 16, 1934, from Charles Ervin, as- 

sistant manager, Railway Traffic Division, The Texas 
Co., to J. E. Tilford, chairman. Southern Freight Associa- 
tion, relative to a proposed conference with traffic officers 
of certain southern railroads. 
Letter, dated November 30, 1934, from Charles Ervin, 
assistant manager. Railway Traffic Division, The Texas 
Co., to officials of four southern railroads submitting a 
proposed tQ,te schedule to meet truck competition 

1271. Letter, dated October 12, 1939, from W. E. Smith, presi- 

dent, StE^ndard Oil Co. (Kentucky), to James R. Brackett, 
secretary of the Committee, enclosing certified copies of 
letters written by 'A. M. Stephens, traffic manager of the 

1272. Letter, dated December 12, 1934, from A. M. Stephens, 

traffic manager. Standard Oil Co. (Kentucky), to officials 
of four southern railroads relative to a scale of rates to 
discourage truck competition 

1273. Letter, dated May 4, 1937, from A. M. Stephens, traffic 

manager. Standard Oil Co. (Kentucky), to J. C. Beck, 
A. G. T. M., Gulf Oil Corp., relative to a proposed rail 

1274. Letter, dated October 12, 1939, from C. McD. Davis, vice 

president, Atlantic Coast Line R. R. Co., to James R. 
Brackett, secretary of the Committee, verifying the 
writing of a letter in his name by J. W. Perrin, F. T. M. 
of the railroad. 

Letter, dated October 12, 1939, from J. W. Perrin, F. T. 
M., Atlantic Coast Line Railroad Co., to C. McD. 
Davis, vice president of the railroad, stating that a letter 
written by Mr. Perrin was signed in Mr. Davis' name. 

Letter, dated February 10, 1936, dictated by Mr. Perrin 
and signed C. McD. Davis, vice president, AtlanticjlCoast 
Line R. R. Co., to officials of 6 ^major oil companies 
with reference to a reduced tariff schedule and citing a 
temporary restraining order issued in compliance; with a 
petition by the Carolina Motor Service and others. 






93 f 2 









Schedule of Exhiiits — Contiuued 


Number and summary of exhibits 

on page 














Copy of judgment of W. C. Harris, Judge Resident in the 
Seventh Judicial District of North Carolina, dated 
March 21, 1936, in the case of Carolina Motor Service 
et al V. Atlantic Coast Line Railroad Co. et al 

Letter, dated October 9, 1939, from J. J. Pelley, president, 
Association of American Railroads, to James R. Brack- 
ett, executive secretary of the Committee, enclosing a 
verified copy of a 

Letter, dated April 26, 1935, from A. F. Cleveland, vice 
president, Association of American Railroads, to officials 
of 13 major oil companies relative to a schedule of rail 
rates to meet truck competition 

Letter, dated January 17, 1935, from J. J. Pelley, president. 
Association of American Railroads, to R. G. Stewart, 
president. Standard Oil Co. of New Jersey, relative to a 
memorandum of discussions regarding transportation of 
petroleum products in the Southeast 

Letter, dated January 31, 1935, from Edwin S. Hall, senior 
counsel, Standard Oil Co. of New Jersey, to J. J. Pelley, 
president. Association of American Railroads, advismg 
of the possible illegality of a proposed agreement 

Letter, dated February 1, 1935, from J. J. Pelley, president, 
Association of American Railroads, to Edwin S. Hall, 
senior counsel. Standard Oil Co. of New Jersey, with 
reference to meeting to discuss the possible illegality of a 
proposed agreement, j. 

Telegram, dated February 4, 1935, from J. J. Pelley, presi- 
dent. Association of American Railroads, to Edwin S. 
Hall, senior counsel, Standard Oil Co. of New Jersey, 
with reference to time of meeting 

I/etter, dated February 4, 1935, from Edwin S. Hall, senior 
counsel, Standard Oil Co. of New Jersey, to J. J. Pelley, 
president, Association of American Railroads, making 
appointment to discuss possible illegality of proposed 
agreement ^ 

Telegram, dated February 5, 1935, from A. F. Cleveland, 
vice president. Association of American Railroads, to 
Edwin S. Hall, senior counsel. Standard Oil Co. of New 
Jersey, re joint conference 

Telegram, dated February 6, 1935, from Edwin S. Hall, 
senior counsel. Standard Oil Co. of New Jersey, to A. F. 
Cleveland, vice president. Association of American Rail- 
roads, making definite appointment for meeting 

Letter, dated February 18, 1935, from Edwin S. Hall, 
senior counsel. Standard Oil Co. of New Jersey, to R. T. 
Haslam, general sales manager. Standard Oil Co. of New 
Jersey, advising Mr. Haslam of the contemplated agree- 
ment and advising as to the possible illegality of it 

Letter, dated December 31, 1934, from Charles Ervin, assist- 
ant manager. Railway Traffic Division, The Texas Co., 
to officials of 4 southern railroads relative to short haul 
rail rates to meet truck competition on short hauls 

Letter, dated January 19, 1935, from W. S. S. Rodgers, 
president, The Texas Co., to J. J. Pelley, president, Asso- 

> ciation.of American Railroads, advising that the com- 
pany's traffic manager will confer with Mr. Cleveland, 
vice president of the Association, on some misunderstood 
points of a recent conference 























9119 I 9328 

Schedule of Exhibits — Continued 

Number and summary of exhibits 

at page 

on page 

1286. Letter, dated January 23, 1925, from J. J. Pelley, president, 

Association of American Railroads, to W. S. S. Rodgers, 
president. The Texas Co., advising that Mr. Cleveland, 
vice president of the Association, and Mr. Ervin, traffic 
manager of The Texas Co., had conferred on certain 
misunderstood' points of a recent conference 

1287. Letter, dated January 29, 1935, from W. S. S. Rodgers, 

president, The Texas Co., to J. J. Pelley, president. 
Association of American Railroads, advising that, in the 
opinion of the Company's general counsel, a proposed 
arrangement would be illegal 

1288. Letter, dated January 31, 1935, from J. J. Pelley, president, 

Association of American Railroads, to W. S. Rodgers, 
president. The Texas Co., suggesting a conference of 
counsel to discuss certain aspects of a proposed agree- 
ment ■■- 

1289. Letter, dated February 1, 1935, from W. S. S. Rodgers, 

president, The Texas Co., to J. J. Pelley, president, 
Association of American Railroads, advising that Mr. 
Klein, counsel of the Company, would be glad to confer 
with Mr. Fort and Mr. Cleveland, counsel and vice 
president, respective, of the Association 

1290. Telegram, dated February 4, 1935, from A. F. Cleveland, 

vice president. Association of American Railroads, to 
Harry T. Klein, counsel. The Texas Co., asking for 
appointment February 7, 1935 . 

1291. Telegram, dated February 4, 1935, from Harry T. Klein, 

counsel. The Texas Co., to A. F. Cleveland, Association 
of American Railroads, confirming appointment on 
February 7, 1935 

1292. Letter, dated March 25, 1935, from W. S. S. Rodgers, 

president. The Texas Co., to J. J. Pelley, president. 
Association of American Railroads, advising that, due 
to legal difficulties, a proposed transportation agreement 
could, not be entered into 

1293. Prepared manuscript of Eugene L. Orvis, attorney, Jersey 

City, New Jersey 

1294. Federal Trade Commission survey of controversial market- 

ing practices in the petroleum products retail industry 

1295. Exhibits in support of "Exhibit No. 1294" •. 


1309. Letter, dated August 31, 1939, from M. H. Champion, presi- 
dent, Petroleum Rail Shippers Association, to officials of 
six southwestern railroads relative to a reduction in rail 
rates from Southwestern to Western trunk line territory 

1422. Letter, dated October 25, 1939, from H. H. Anderson, vice 
president. Shell Oil Co., Inc., to James R. Brackett, 
secretary of the Committee, submitting data on the cost 
of Workmen's Compensation insurance, as requested by 
Dr. Isador Lubin 










1 On file with the Committee. 

» Admitted to the record October 19, 1939; see Hearings, Part 17, p. 9509. 



United States Senate, 
Temporary National Economic Committee, 

Washi/n^ton, D. G. 

The committee met at 10 : 35 a. m., pursuant to adjournment on 
Saturday, October 7, 1939, in the Caucus Room, Senate Office Build- 
ing, Senator Joseph C. O'Mahoney presiding. 

Present : Senator O'Mahoney (chairman) ; Representatives Sum- 
ners (vice chairman), and Williams; Messrs. Henderson, O'Connell, 
and Brackett. 

Present also : Clarence Avildsen and Robert McConnell, represent- 
ing the Department of Commerce ; Quinn Shaughnessy, representing 
the Securities and Exchange Commission; William T. Chantland, 
representing the Federal Trade Commission ; Hugh Cox, W. B. Wat- 
son Snyder, F. E. Berquist, Christopher Del Sesto, Special Assistants 
to the Attorney General ; Leo Finn and Roy C. Cook, Department of 

The Chairman. The committee will please come to order. 

Mr. Hadlick, will you be sworn, please ? 


The Chairman. Do you solemnly swear that the testimony you are 
about to give in these proceedings shall be the truth, the whole truth, 
and nothing but the truth, so help you God ? 

Mr. Hadlick. I do. 

The Chairman. Give your name to the reporter. 

Mr. Hadlick. My name is Paul E. Hadlick. I am secretary and 
counsel of the National Oil Marketers Association, with offices here 
in Washington. 

independent marketers 

The Chairman. What is the National Oil Marketers Association? 

Mr. Hadlick. It is an organization of independent oil jobbers, 
representing about 30 States east of the Rocky Mountains. They 
are jobbers, distributors, wholesalers, as the term is loosely used in 
the oil business. 

The Chairman. How many members are there? 

Mr. Hadlick. I would prefer not to disclose that in open hearings, 
Mr. Chairman. If you insist, I will. 

The Chairman. I can't very well understand your reason for not 
wishing to do that. 



Mr. Hadlick. We have 250 members. 

;The Chairman. Are they independents or integrated companies 1 

Mr. Hadlick, They are strictly independent men who own and 
operate their own businesses. 

The Chairman. When was the organization formed ? 

Mr. Hadlick. It was first organized in August 1933. It was in- 
corporated in June 1935. 

The Chairman. How long have you been associated with it? 

Mr. Hadljck. I have been associated with the organization since 

The Chairman. Were you associated with the petroleum industry 
in any way before that? 

Mr. Hadlick. I first became secretary of the Minnesota Petroleum 
Association in 1924 and served with that association and the successor 
organization known as the Northwest Petroleum Association until 
1930. From 1930 to '33 I was secretary of the Division of Marketing 
of the American Petroleum Institute, leaving their service on, I 
believe, August 1, 1933. 

The Chairman. You may proceed. 

Mr. Hadlick. I have a prepared statement, and, first of all, I will 
offer that for the record and then will proceed to present what I 
believe are the highlights of that statement. 

The Chairman. The statement may be received. 

(Mr. Hadlick's prepared statement was marked "Exhibit No. 1211," 
and is included in the appendix on p. 9151.) 

Mr. Hadlick. First oi all, I would Jike to call the committee's at- 
tention to the principal products with which we are dealing. They 
iU'e the products in which the jobber is interested. I have some fig- 
ures prepared by Walter N. Polakov, of the United Mine Workers, 
which show the percentages of gasoline, kerosene, fuel oil, lubricants, 
and all other products. 

Representative Williams. Who is this gentleman? What is the 
source of his information ? 

Mr. Hadlick. I do not know. My principal reason in bringing it 
up is that, if the figures are not 100 percent correct, they are very 
cJose to it, and I don't think anyone in the industry would doubt it. 
'Hiey are taken for the year 1937, both in volume and in value. I 
would like to submit them and read the figures to you as being what 
I believe to be the correct figures. If anyone in the industry doubts 
their exactness, I would certainly stand corrected, but I don't think 
anyone would question them. 

Representative Williams. What is your basis for believing they 
are correct? 

Mr. Hadlick. My general experience with the industry and study 
over the past 14 years. 

Representative Williams. Have you made any compilation along 
that same line? 

Mr. Hadlick. No; not exactly. 

The Chairman. What do they purport to show? 

Mr. Hadlick. They purport to show that in volume the gasoline 
accounts for 49.1 percent, kerosene 5.7 percent, fuel oil and gas oil 
40.2 percent, lubricants 2.85 percent, and all others 2.15 percent. That 
is in volume — what becomes of the crude oil that comes from the 


The Chairman. How did it happen that a person associated with 
the United Mine Workers should be preparing statistics on petro- 
leum ? 

Mr. Haduck. The only way I can explain that is, perhaps, because 
of their interest in the fuel-oil competition, representing the coal 

The Chairman. Were they published? 

Mr. Hadlick. I don't know whether this has been published or not. 
I assume it has. 

The Chairman. How did you get them? 

Mr. ELadlick, It was given to me by a party who knew Mr. Polakov 
and brought it over to my office. I am not trying to introduce it 
here in the record ; I am merely trying to give you what I believe to be 
a basis so that we will understand that while face cream at $2 a pound 
does use a product of oil, the bases that we as jobbers are interested 
in are these products that constitute about 98 percent or better of the 

The Chairman. May I see that ? 

Mr. Haduck. The independent oil jobber is generally one who 
operates a bulk plant handling these four products that I mentioned ; 
gasoline, keresene, fuel oil, and lubricants. There are some jobbers 
who handle only one of those products. That is particularly true in 
the case of fuel oil which is distributed largely by coal companies 
who, having the fuel accounts of the community and finding the con- 
version from their coal accounts going to the oil companies, put in 
supply storage for fuel oil. There are some who are strictly lubricat- 
ing-oil jobbers. That is true particularly in our metropolitan cities 
where the gasoline-price wars have forced most of the independent 
jobbers out of the business. 

Now there are in the United States approximately 8,000 independ- 
ent oil jobbers ; that is, jobbers who own and operate their own busi- 
ness. They may market under their own brand; they may market 
under a refiner's brand, either major or independent'. * 

These jobbers, as I say, do own and operate their business. The 
publishea lists in the industry take into consideration the great many 
men who own a plant but who have nothing to say as to the opera- 
tion. Mr. Pew, of the Sun Oil, described his contract to you where 
the man was merely an agent. We do not classify that party as being 
an independent oil jobber. 

Now the problem that confronts the independent jobber, is not 
that the function will be eliminated, but whether the function will be 
performed by independent businessmen who can offer price compe- 
tition or by controlled agents who have no discretion. With the con- 
tracts such as referred to by Mr. Pew, the jobber, like the dealer, is 
loaded with all the burdens of an independent, ajid none of the 
benefits. Likewise, he has all the burdens of an employee and none 
of the benefits. 


Mr. Hadlick. I want to discuss the matter of costs of marketing. 
First of all, I want to refer you to a chart from the World Petroleum 
Magazine of December 1937. This chart has beei: reproduced. 
(Comparison of Net Profits and Investments by Major Divisions of 


the Petroleum Industry, 1927-29 and 1931-34.)^ It shows, using 100 
percent, the investment in the oil industry and its profits. 

This has been broken down to show the investment in pipe lines 
and the profits in pipe lines, the investment in production and the 
profits in production, the investment in refining and marketing and 
the losses in those two branches. 

There have been times in the period covered when refining has 
shown a profit. I do not know what the figures would show, but 
this line would be projected further down if refining had been sepa- 
rated from marketing. 

I also point out the years, 1927-29 and 1931-34. 

The author of that article and that chart was Mr. Paul Kyan, who 
has apparently been making a study of the industry for sometime. I 
have never met the gentleman but from the trade press I learn he is 
now president of the National Refining Co. 

Mr. Chantland. May I ask a question? 

The Chairman. Certainly. 

Mr. Chantland. ,You said the red (lower half of chart) ^ would 
go further down if refining and marketing were separated. Would it 
go down f or> refining or down for marketing ? 

Mr. Hadlick. Down for marketing, because in those years refin- 
ing for some of those years was profitable. 

Mr. AviLDSEN. Do you know why the figures aren't carried out for 
subsequent years, '35, '36, '37, '38? 

Mr. Hadlick. No; I have some other information along this line 
from other companies that I will refer to to try to bring it down and 
I think the situation has been getting worse rather than better. 

I also have a letter from Mr. Ryan I will read later explaining why 
that year was left out, 1930. 

Mr. AviLDSEN. He doesn't explain why he didn't get later years? 
I mean, it would be more helpful to this committee to get some up-to- 
date information rather than ancient history. 

Mr. Hadlick. That is right, but I was trying to show a trend and 
I will get into these later figures. I have some down to '38 with 
some of the companies that I will show you. 

Mr. Berquist. May I ask you if the short bar on pipe lines, the 
shaded one, represents the percentage of investment in pipe lines as 
compared to the total industry ? 

Mr. Hadlick. That represents the percentage of 100, it would be 
roughly, I would judge, 9 percent. 

Mr.^ Berquist. Then the bar alongside of it represents the ratio 
of the income from pipe lines to the total net income of the whole 
industry ? 

Mr. Hadlick. Yes; that is right. You see, you have profits here 
that would go far over 100 percent, but they are offset by losses 

Explaining his chart in his article a little further, Mr. Ryan says : 

Data on earnings of pipeline companies are obtainable from their reports to 
the Interstate Commerce Commission. The data on the earnings of the produc- 
tion phase of the industry come from cost studies of the United States Tariff 
Commission from 1927 to '28, and from the Petroleum Administrative Board 
from 1931 to '34. 

1 Included in "Exhibit No. 1211," appendix, p. 9151. 
*The original chart was done in colors. 


The Chairman. Mr. Hadlick, I am wondering why in this chart 
to which you have just been referring refining and marketing are 
considered as one division of the industry instead of two. 

Mr. Hadlick. I cannot explain that, except that I presume his 
figures on the cpmpanies that he took could not be broken down; in 
other words, he couldn't break the figures down. He was an outside 
marketing engineer, or sales engineer. 

The Chairman. Now the members of your association, for the 
most part, I take it, are not engaged in refining. 

Mr. Hadlick. That is correct. 

The Chairman. You represent a 100-percent marketing division. 

Mr. Hadlick. That is right. 

The Chairman. So that for the purposes of showing the profits 
or losses of the independent, this chart is worthless. 

Mr. Hadlick. That is right, except it does show the losses of the 
integrated companies, and leads up to the story I am going to tell 
of the competition we are facing. 

The Chairman. Does this purport to be a chart representing the 
investment and the profits of the integrated companies only ? 

Mr. Hadlick. That is right, this covers the integrated companies 

The Chairman. I see. Then that is the explanation why refining 
and marketing is regarded as one item. 

Mr. Hadlick. Yes, sir. 

The Chairman. Nevertheless, if they were divided, that is, the 
investment and the profits, or the income in refining and marketing 
were divided, it would be a much more illuminating chart. 

Mr. Hadlick. That is right. You can understand the difficulty we 
have in trying to get figures from integrated companies. . I have 
some reports here that I will refer to later, particularly the Standard 
of Nebraska, which is a 100-percent marketing company, or wa^ until 
its absorption by the Standard of Indiana. They prove very illu- 
minating for a number of years. The same is true of a numb^ of 
companies like the Standard of Pennsylvania or the Colonial Beacon. 

The Chairman.' Nevertheless, I am not very much of a mathe- 
matician and I am still having difficulty with this chart. I under- 
stood it to be prepared for the purpose of showing the ratio of, let 
us say, investment — let's deal with the profits, the ratio of profits of 
each of these branches to the total. Take the pipe line chart. That 
would appear to indicate that about 82 percent of all of the profits 
for the whole industry are obtained from the pipe lines. 

Mr. Hadlick. That is correct. 

The Chairman. Is that right? By the pipe lines? 

Mr. Hadlick. Those are his figures ; yes, sir. 

The Chairman. And it would appear that 120 percent is obtained 
by production. 

Mr. Hadlick. That is right. 

The Chairman. Now, if I add the profits of the pipe lines to the 
profits of production I have 202 percent. 

Mr. Hadlick. Then you deduct your losses in refining and mar- 

The Chairman. That leaves the hundred. 

Mr. Hadlick. That leaves the hundred. 
The Chairman; I see ; all right. 


Mr. Hadlick. I would like to continue this little explanation. I 
think it will clear the matter up. Mr. Ryan says : 

This table shows that for a period of 7 years for which data are available, 
the production and pipeline divisions of the oil industry produced on the 
average more than twice the total annual net profits of the industry. The 
refining and marketing divisions' losses cut these profits in half. In other 
words, if the refining and marketing divisions could operate merely on a 
break-even basis the oil industry's profits would be more than doubled. These 
tables indicate that for the period shown the pipeline division, having only 
7.1 percent of the industry's investment, produced 86 percent of the industry's 
total final net profits. The production division, having 42.7 percent of the 
investment, produced an additional 120 percent of the final net profits, givins? 
a grand total of 206 percent of the industry's net profits, and the refining an j 
marketing divisions, having 50.2 perceht of the investment on the average, 
produced a loss equal to over 106 percent of the industry's final net profit . 
These data cover 5 good years, 1927, '28, and '29 and 1933 and '34, and 2 poo.- 
years, 1931 and 1932, and come from sources deemed to be reliable. In 3 of 
these 5 good years the refining and marketing division showed a loss, produc 
tion showed a loss in 1 year, and the pipe line in none. 

Mr. Shaughnesst. Mr. Hadlick, I have been looking at the tabu 
lation, which accompanies this table in your statement,^ of the in- 
come of the petroleum industry by division and by years, and I was 
wondering What financial statements of the oil companies were avail 
able on which that tabulation might be based. 

Mr. Hadlick. I donft know, but he says in his chart: "Data 
through courtesy of Young Management Corporation, New York. 
'Oil Attains Prosperity.' " I assume they had fairly good access to 
most of the records, most of the annual reports. 

Mr. Shaughnesst. I know that in .the final statements filed 
with 01 T Comrai^ion there is Ho break-down between production, 
refining, transportation, a^d marketing. I was wondering what 
other financial statements were likely to be available. We naven't 
found the companies gratuitously publish financial inforniation. 

Mr. Hadlick. I can only offer it, Mr. Shaughnessy, for what the 
author states it to be. I believe it to be correct^ as near correct as 
could be possible under the circumstances. 

As I pointed out, getting this information is difficult. As Mr. 
Shaughnessy has pointed out, the Securities and Exchange Commis- 
sion does not even get the break-down, so we have to depend for 
our information mostly in recent years on admissions against inter- 
est, admissions that they make because there is no othe^r way around 
it. I have here a prospectus of the Texas Corporation, I understand 
filed with the Securities and Exchange Commission, February 5, 1937. 
That contains a paragraph by Mr. DeGolyer, who was apparently 
employed to make a report on the company. It says : 

While both domestic- and foreign-marketing operations considered as depart- 
ments have shown losses in each of the years 1930 to 1935, the marketing opera- 
tions of the corporation's subsidiaries are in my opinion as good as or better 
than average good practice in the industry. Costs of marketing are low, and 
the marlfetmg departments, both domestic and foreign, have performed well 
their primary function of providing assured outlet for the products of the cor- 
poration's subsidiaries and thus permitting them to operate broadly in tas 
other branches of the oil industry. 

»,Ex. No. 2 of "Exhibit No. 1211," appepdix, p. 9.156. 


I couldn't give you a better picture of the thing the independent 
jobber is facing than that statement there, where he says that — 

The costs of marketing are low and the marketing departments have per- 
formed well their primary functions of providing assured outlet for the preducts 
of the corporation's subsidiaries and thus permitting them to operate broadly in 
other branches of the oil industry. 

The Chairman. Whose statement is this? 

Mr, Hadlick. This is from a prospectus of the Texas Corporation 
on file with the Securities and Exchange Commission. It is the 
report of Mr. DeGolyer on the condition of the company. 

Mr. Cox. The same Depolyer who testified here? 

Mr. Hadlick. I understand it is; Mr. E. DeGolyer, Continental 
Building, Dallas, Tex. 

It starts out — you were not here, Senator [reading] : 

While both domestic and foreign marketing operations considered as depart- 
ments have shown losses in each of the years 1930 to 1935 — 

and he goes on to state that it is a satisfactory function in the in- 
dustry because it serves these other departments. 

Mr, Chantland. He follows it thereafter differentiating between 
the Texas and the others. 

Mr. Hadlick (reading) : 

The costs of marketing are low and the marketing departments both domestic 
and foreign have performed well their primary function of providing assured 
outlet for the products of the corporation's subsidiaries— 

and so on. I see what you mean. 

And in my opinion as good as or better than average good practice in the 

Mr. Chantland. Better off than the average. 

Mr. IJadlick. That is right. 

There is another prospectus on file with the Securities and Ex- 
change Commission by -the Pure Oil Co., August 30, 1937. This 
statement appears [reading] : 

Under conditions existing in recent years marketing operations considered as 
ar seirarate and distinct acUvity without regard to earnings from collateral 
operations and based upon the acquisition of refined products by th6 marketing 
divisions and subsidiaries at no allowance for published wholesale market prices 
show substantial losses, with the result that the company's consolidated net 
earnings have been substantially less than they would have been had it been 
possible for the company to sell its crude oil products as such at posted prices 
or as refined products at full published wholesale market prices. 

The Chairman. Now, the purpose of these quotations is to sustain 
the showing on the chart that in refining and marketing these com- 
panies sustained heavy losses? 

Mr. Hadlick. That is right; and to carry it beyond the date of 
that chart, '34. We have '35, and now '36 and '37, and I will pro- 
ceed to a couple of others. You understand how difficult it is to 
get these unless you find an admission against interest. I was in 
hopes that this committee would secure the information from the 
companies direct. 

Mr. Cox. If I may, it might be well to point out here that the 
.questionnaire which was circulated by the committee was designed in 

124491 — 40— pt. 16, sec. 3 2 


part to obtain that information. We did obtain it from some com- 
panies, but an appreciable number of companies refused to give us 
the information either on the ground that they couldn't know what 
their costs were or on the ground that the information would be 
meaningless to us. So that our information on this score is likewise 
a little mcomplete. It is very difficult, I will say in fairness to Mr, 
Hadlick, to avoid giving ancient history on this point. 

MfT. Hadlick. I have here the correspondence in connection with 
the stockholders of the Standard Oil Co. of Nebraska, sent out by 
that company prior to the merger or the consolidation or absorp- 
tion of that company by the Standard Oil Co. of Indiana. The 
Standard Oil of Nebraska was entirely a marketing unit. It was 
as close to the operation of a jobber as one could find, yet it oper- 
ated over the State of Nebraska. It unquestionably had more 
favorable buying arrangements than the average jobber because of 
the volume that they purchased. Yet for the period 1932 to '38, 
each year was operated at a loss except the year 1936 when they made 
$10,000. I will give you those figures in round numbers: 1932 they 
lost $270,000; in 1933, $349,000; in 1934, $641,000; in 1935, $81,000; 
in 1936 they made $10,000; in 1937 they lost $133,000; in 1938 they 
lost $138,000. , 

I hope you will bear with me on these figures because they are the 
best we are ab}e to gather and I am trying with them to show you 
the competitive situation that we are facing. 

Representative Williams. What became of that company ? Did it 
continue to operate with that kind of a loss, consistent loss year after 

Mr. Hadlick. No; the fact of the matter is that is perhaps why 
they have merged with the Standard of Indiana. I don't know the 
reasons. They give this statement along with the request for proxy. 
As I point out, they had someone to lean against and to fall to. 
The stockholders were taken care of in that company. They got 
$17.50 per share of stock, quoted shortly before that as low as 
6%. But it is very clear that that company couldn't continue oper- 
ating year after year with those losses. It is just axiomatic, no 
matter how much they had in the reserve. 

The statements I believe are all here. Maybe I am not sufficient 
of an analyst to go into them, but I have them here if any of the 
committee would like them. 

Representative Williams. Where did they get their products? 

Mr. Hadlick. As I recall, they all came from the plant of the 
Standard of Kansas. There might have been some instances in 
western Nebraska where the products came from Casper. That is 
just my best information. I have no way of knowing -exactly. I 
never saw the tank cars delivered thei;e, but that is my observation. 

Representative Williams. The point I had in mind was whether 
they had an exclusive contract with some of the major companies 
for the delivery of the products to. them as a jobber. 

Mr. Hadlick. I believe they had an exclusive contract with the 
Standard of Indiana. They handled the products under their own 
brands; with the exception of lubricating oils, they carried the old 
Polarine brand of the Standard of Indiana. 

The Vice Chairman. With whom were they in ccgnpetition in 
the distribution of oil in that territory ? 


Mt. Hadlick. In Nebraska? They were in competition with the 
bulk plants of both jobbers and the bulk plants of Independent re- 
finers and the bulk plants of other major refiners. I believe I can 
safely say that Texas, Sinclair, Champlin, Skelly, Continental, per- 
haps some others, all operated in Nebraska ; Socony- Vacuum. 

The Vice Chairman. We had some testimony here to the effect 
that while other activities of these oil organizations would make 
money, they lost money in sales. 

Mr. Hadlick. That is the point I am trying to make here. 

The Vice Chaikman. Is it general in the business that thay lose 
money at the selling end? 

Mr. Hadlick. Sir, I believe it is in the marketing end generally east 
of the Rocky Mountains, as to the integrated companies. Our mem- 

' The Vice Chairman (interposing). Why don't they surrender that 
then to independent people or somebody else who won't lose money? 

Mr. Hadlick. You are asking me for a conclusion -which. I was 
trying to leave the committee to reach. We are in the position of 
presenting to you what we believe are facts showing losses in market- 
ing that we cannot year after year go up against, and we believe it is 
an unnecessary crowding of building and of sales efforts in the mar- 
keting end. I will show you later where one company has a 3-cent 
marketing cost, the wholesale cost, yet we are expected and must 
operate on one and a half to two and a half, depending on the terri- 

The Chairman. Your theory, I take it, is that the integrated com- 
panies are able to make such profits upon production and transpor- 
tation that they are able to, and do, market these products to thel 
general people at a loss, and as a result thereof the independent jobber 
is finding himself in increasing difficulties? 

Mr, Hadlick. That is exactly right. Senator. That is exactly right. 

Now, over in. the House side we had a hearing.^ Mr. Brown,^ of; 
the Socony -Vacuum, said: 

In New York and New England, where our company was the first general 
'marketer in the oil industry, we had approximately 36 percent of the gasoline 
business in 1929 and only about 24 percent in 1938. 

Now, the figures submitted by Mr. Farish, of the Standard of New 
Jersey,^ which owns the Colonial Beacon, show that for the years 
1930 to 1937, the Colonial Beacon lost money each year. Roughly, 
the figures are : 1930, $2,000,000 ; 1931, $860,000 ; 1932, $1,668,000 ; 1933, 
^2,415,000; 1934, $2,547,000; 1935, $3,068,000; 1936, $3,191,000; 1937, 

Mr. Chantland. Where does Colonial Beacon belong ? 

Mr. Hadlick. They operate in New York and New England. 

Mr. Chantland. What system? 

Mr. Hadlick. The Standard Oil Company (New Jersey) or of New 
Jersey; I haven't got it quite straight. 

I point out there is price competition between two of the old 
Rockefeller group, the one losing some of its gallonage, the other 

^ Hearings held by Subcommittee No. 3 of the House of Representatives Judiciary 
Committee pursuant to H. R. 2318, 76th Cong., 1st Sess. Representative Healey (Massa- 
chusetts), chairman: "To divorce the businesses of production, refining, and transporting 
of petroleum products from that of marketing petroleum products." 

' John A. Brown, president. 

' Submitted during the hearings cited In footnote 1. Mr. Parish's testimony before 
this committee is included in Hearings, Fart 17. 


buying it in and the jobber caught in the middle. As I said to the 
House coniniittcc, "Caught in the jaws of the giants has been the 
independent marketer." 

The figures in that same hearing give similar figures for the Stand- 
ard Oil Company of Pennsylvania, losses ranging from $284,000 to 
$1,700,000. Losses for the years 1930 to 1935 of the Standard Oil of 
Louisiana, and a slight profit in '36 and '37. 

Now I come to a statement sent out by Barnsdall Oil Co., Sep- 
tember 5, 1939. That is a report to the stockholders in which they 
apparently had a disagreement with the authorities of the New York 
Stock Exchange. In fairness to them I perhaps should read all of it. 
I am not trying to be critical of their situation, but the position is 
this : A number of years ago, probably three or four, Barnsdall Oil 
Co. set up its crude oil and its pipeline companies as one. It set up 
its refining and its marketing companies as another, and took in 
return notes and preferred stock which it has held in its treasury, 
thinking eventually to turn it over to its stockholders and accomplish 
a divorcement of refining and marketing from production and pipe- 
lines. It shows how futile such an effort is on one company's part, be- 
cause the Exchange disagrees with their accounting system and the 
value placed on these notes. To give you the operation of the Barns- 
dall Refining — now we are talking of the refining and marketing — 
Co., for the years 1936, '37, and '38, are as follows : The operating loss 
for the year 1936 was $101,533.10, to which was added depreciation 
of $616,733.97. The operating loss for the year 1937 was $233,195.62, 
to which was added depreciation of $637,163.04. The operating loss 
for the year 1938 was $796,008.53, to which was added depreciation 
of $636,510.31. 

I point those out as instances that we can get our hands on. I wish 
this committee, before it suspends on oil, would make it a point to 
find the true picture as between refining and marketing, but we are — 
the independent jobber is — in a deplorable condition when it comes 
to operating year after year. As I pointed oiit in my general state- 
ment, I believe the independent jobber can operate more cheaply than 
a major company in the distribution of products. I would roughly 
estimate tTiat as being 20 percent cheaper. The fact that he stayed 
in business, the fact that during these years, '27 to '34, the jobbers 
liad what we called fair prosperity, and yet they lost money in the 
marketing, serves to prove my point. 

The Chairman. In other words, you feel that if the jobber were not 
pressed as you apparently believe he is being pressed, by major com- 
panies marketing at a loss, he would still be able to market at a profit 
without impairing the position of the consumer? 

Mr. Hadlick. That is right, absolutely. 

The Chairman. Now that is a very important point to develop. 
Thus far you have indicated that the 'major companies conduct their 
marketing operations at a losSj and that by reason of that loss, they 
are crowding the independent jobbers whom you represent. 

Mr. Hadlick. That is right. 

The Chairman. That must mean that the independent jobbers find 
it difficult to meet the competition of the major companies. Now if 
that is a price competition, then it necessarily follows either that the 
price of gasoline to the consumer is not high enough, or that price of 
gasoline as purchased from the refiner is too high. 


Mr. Hadlick. It is a case of the price of the refiner being too high, 
the economic structure up to that point being too high for one thing, 
but forgetting that, leaving that structure as it is, if they will reduce 
their expenses of marketing to ours, without any increase in our 
margin, we will make money, because that means closing these bulk 
plants that are in the horse range district and aren't economical. 
It means closing filling stations; quit subsidizing new palaces. We 
had an experience here in the District of Columbia; the Gulf Re- 
fining built 30 new stations, swept the ground clean, threw in, I think, 
five or six million dollars. They have the same gallonage, just a trifle 
more, but it is competition. Those stations cost thirty to fifty thou- 
sand dollars. 

The Chairman. Then you seem to be indicating that the majors 
are competing so strongly among themselves in the construction of 
new stations and in concessions of the kind which were described here 
on Saturday that they are losing money and that they are handling 
this phase of the business in an uneconomic way. Is that your 
conclusion ? 

Mr. Hadlick. They are har iling it in an uneconomic way, that is 
true. Now the pinch comes when we find two of these giants — and 
I mean no insult to them, they are large; the Standard of New Jersey 
is a $2,000,000,000 company, the Socony Vacuum is a $1,000,000,000 
company. When one of those decides to go into New England and 
the other decides not to let them, they crowd, as the Colonial Beacon 
did all these things Mr. Swensrud mentioned, to get business. As I 
have shown in my statement, the thing never worked until they found 
proration and until they found a way of buying the little gasoline that 
ths independent refiner had and moving this bottom up, and there the 
jobber is caught. 

The Vice 'Chairman. The jobber is caught between the fire of the 
two big companies, so to speak. They are supposed to be shooting 
each other but you are between the two and get the shots from both. 

Mr. Hadlick. That is right, and as I say, in the final analysis we 
consider them just the same company. 

The Vice Chairman. They are hurting you just the same whether 
you are shot in front or in behind. 

Mr. Hadlick. You are just as dead as if you were right, 

I really think Mr. DeGolyer evolved the philosophy of the major 
companies when he said the marketing is a dumping ground. You 
have to go out and buy it ; you have to pay what it takes to get the 
market, and as I conclude in my statement, eventually the consumer 
is ^oing to pay for that, once competition is eliminated. Price com- 
petition is becoming less and less effective in this industry, that is 
price competition between bona fide competitors. The jobber isn't 
going out of business in the sense that his plant is closed up and there 
is a sign on it, "For sale by the sheriff." It goes out of business like 
Mr. Swensrud said about the Red Indian oil in Detroit. When the 
major companies pulled the Sunny Service deal, it practically broke 
all the jobbers up there. They were financially embarrassed and they 
run to their supplier for money and they get $100,000, and then they 
can't pay it back and they take stock; it is just a gradual trend. 
The plants are still there; in many instances they have the word 
"independent" connected with them, but they are agents of the refiner. 

Now you carry that to a poinj, as it has been in your State, Senator, 


in Wyoming, where jobbers are few and far between, and you have 
'a stabilized and higher price. At a later time in my statement I 
would like to go into that whole subject of basing points and prices 
in the independents. I. prefer not to get on on it right at 
this time because I want to continue this matter of margin. And 
when I mention margin, margin is a relative thing. W© can get along 
on 2 cents a gallon margin if the others are on that. The best ex- 
ample of that is that in heating oil distribution the margin is very 
low because no one has crowded a lot of facilities into it. They are 
beginning to crowd it, and heating oil, if it carries its own weight, is 
going to have to carry a higher marketing cost. A margin of 6 cents 
a gallon wouldn't be ade'quate if your competitor is spending 12. It 
is a question of how many salesmen you are putting on the street, 
what services you are giving the consumer; that is what the margin 
it takes to operate depends on. 

We believe we are equipped to operate economically. We are being 
forced more and more to put more and more money into marketing, 
so our costs are going up and the majors are still exceeding it. I 
would say the average in the country of the major oil companies 
would be better than 3 cents a gallon on what ,we call the wholesale 
market, and I would say the average for the jobber is less than 2 
cents. There is a disparity of 33^^ percent in gross operating mar- 
gin. It is something you just can't overcome for a great length of 
time. Fortunately, these jobbers own their own business; they cap 
hang on for a long time if they have to, but when on top of that is 
thrown in a local price war, as I will show you in some of the charts 
later, he has to throw up the sponge because his outgo is more than 
his income. 

Representative Williams. What percentage of the entire product 
do these independent jobbers handle? 

Mr. Hadlick. Oh, I used the figure in there, 50 percent east of the 
Rockies. That is a figure that I have talked with trade publications 
about, and they agree upon. It includes a great deal of fuel oil going 
through the so-cafled coal dealer, who is also a jobber of that product. 
The trouble is that it is getting less and less because more and more 
of these people are becoming agents of the major companies, con- 
trolled by them. Therefore, for all purposes you couldn't say they 
were independent. If a man has to take the money he gets in at the 
end of the day and deposit it to the account of his supplier, and can't 
give credit except to the people he says he may give credit to, I 
wouldn't say he was an independent' merchant. I would say he" was 
an employee. But they have gotten around that by saying he is not 
an employee, he is an agent. So I think part of that leasing and con- 
trol that way is to get away from a great many of these other ex- 
penses. Maybe their cost of marketing is coming down; I don't 
know ; it should be, but in the market we are still feeling it. » 

Representative Williams. From whom do these independent job- 
bers get their products? 

Mr. Hadlick. Oh, they buy from anyone from the Standard Oil 
Co. of New Jersey on down to the smallest tea kettle you can find 
in the country. They buy sometimes for distribution under the re- 
finer's brand, or a brand that that refiner authorizes them to use, or 
sometimes >under their own brand. In our association we have job- 
bers 'ho )6ny products from the Jersev. whn buv products from fho 


Shell, from tlie Pure, from the Continental, from Texas, and Sin- 
clair, and practically all the independent refiners.- 

Representative Williams. Do they buy from a major company, 
one of the integrated companies, and then at the same time does that 
same company set up a bulk station in competition with them, side 
by side in the same area ? 

Mr. Hadlick. As a rule not. There are instances. There was a 
time, for instance, when Continental Oil. had nine distributors of 
Continental products in Denver, plus their own distribution, but I 
don't think that is the general rule. As a matter of fact, it perhaps 
is not good business, for one thing, to sell a man who handles your 
brand and sell him as a jobber and then be in the jobbing business 
yourself too. But take the case of the Jersey; out of Baltimore you 
can buy gasoline from them in tank cars. You can sell under your 
own brand name or sell under the name of Spartan, which they have 
set aside for the use of jobbers, but they wouldn't let you sell Esso, 

Representative Williams. As a rule, then, you are not in compe- 
tition with the same company from which you buy, but you would be 
in competition with some of the other integrated companies in the 
same locality, with the same result. 

Mr. Hadlick. That is right. 

Now, in this connection there is an article in the June issue of For- 
tune magazine that sheds some light on this question of the Conti- 
nental Oil Co. I believe that is a Morgan-financed organization. 

It says : 

In building the line — 

this is tlie Great Lakes Pipeline — 

"Continental and its five collaborators put up a total of $5,500,000. The Guar- 
anty and other bankers supplied an additional $8,000,000, and with this $13,- 
500,000 pledged, work was started. The project when completed cost $26,000,000. 
but half of this was financed out of earnings. Continental owns a 29i-percent 
interest in the Great Lakes Pipeline Co., and from 1933 to 1938 inclusive 
it has received a total of over $8,000,000 in dividends. This is nearly one-fifth 
of Continental's net earnings for the i)eriod. Those spectacular dividends, how- 
ever, are subject to qualifications. For in great measure they do not represent 
a straight net to Continental. They have been largely offset by losses suffered 
by its marketing division in expanding its operations in the Chicago and North 
(Central areas. Take, for example, 72-octane gasoline moving up to Chicago 
today. The wholesale price (tank-car price) per gallon of this, gasoline at 
Ponca City is about 4% cents. Roughly, at this price the Ponea refinery transfers 
the gasoline to the company's marketing division which then becomes responsible 
for its distribution. In the case of Chicago sales, the marketing division pays 
over to Great Lakes Pipeline a 2.64-cent transportation toll and at the Chicago end 
either sells the gasoline to a jobber or handles the distribution all the way to the 
filling station. If the marketing division does the job, it must get a spread of at 
least 3 cents to cover maintenance of storage bulk plants, gasoline trucks, and for 
general expenses. 

That is 3 cents that they must get, yet chey will give the jobber 
in the Chicago area 2 cents or less. Gasoline now goes to the filling 
station at what is called the tank-wagon price, and the dealer wants 
a spread of at least 4 cents to make a profit. There are some other 
interesting facts. I don't want to bore you. 

Then he goes on [reading] : 

The fact is that regular gasoline is being retailed in Chicago at approxi- 
mately two cents below that level, partlj: owing to a gasoline station price- 
war. fundamentally owing to the fact that the opening up of crude production 
in Illinois has tended to depress prices in the Chicago area. As a result^ Conti- 


nental's merchandising department sacrifices part of its three cent margin, and 
is losing on every gallon of gasoline going into Chicago, but part of that loss 
gets sluiced back to the company through Great Lalies Pipeline dividends, and 
from Continental's point of vievi^ both loss and gain are purely bookiceeping. 
If Continental owned Great Lakes Pipeline outright, it might operate it at 
cost. Whereupon, there would be no pleasant profit item appearing on its books 
from ownership of the line, nor would there be a loss chalked up against its 
merchandisers. Over a period of years. Continental figures that dividenxls from 
the pipe line have about equaled bookkeeping losses of its marketing division. 
This, of course, does not quiet the shrieks of the small mid-west refiner who 
has no pipe line to get him into Chicago, nor does the policy of treating pipe 
lines, refining and marketing as one operation, console the gasoline jobber. 
Where gasoline prices are falling he is subject precisely to the same kind of 
squeeze as the marketing division of an integrated company, but he has no 
compensating income from refineries and 'pipe lines to make good his losses. 
Hence, the continual agitation for divorce of all pipe lines from the major 

The Vice Chairman. May I ask you this question? Do these 
major companies sell to jobbers at the same price that they use in 
their set-up, in their ^ales to their own distributors? 

Mr. Hadlick. I- can't answer that definitely. It is apparent that 
they don't, that the Continental does not, because they are not giving 
jobbers in the Middle West 3 cents a gallon margin and they are 
using a 3-cent cost for their marketing division.' 

The Vice Chairman. Specifically you mentioned, as I recall, a 
price of 4^ cents in the Chicago area. 

Mr. Hadlick. That is right. 

The Vice Chairman. Can independent jobbers buy that gasoline a^t 
4 1/2 cents? 

Mr. Hadlick. That is right, but they must pay 2.64 cents freight 
rate, almost 2.75 cents a gallon freight rate. 

The Vice Chairman. Then does the major company, I mean the 
company vou mentioned, charge that same freight rate against its 
own distributing agency? 

Mr. Hadlick. I believe tliey do. 

The Vice Chairman. Then that would be the same price in the 

Mr. Hadlick. That is right^ except they have these profits to come 
back to offset. 

The Vice Chairman. I know, but I am just talking about selling. 
Do you know whether or not — I believe you said you do not know 
whether or not it is the custom of these integrated concerns that have 
their own selling agencies, to sell to independent purchasers at the 
same price that they charge against their distribution. 

Mr. Hadlick. I don't think it is a general practice ; no. 

The Vice Chairman. What is? Do they in their system of book- 
keeping charge to their distributing agencies this gasoline at a 
cheaper or a higher price than they sell to the independent distrili- 

Mr. Hadlick. I would say at a cheaper price. 

The Vice Chairman, To their own agency? 

Mr. Hadlick. To their own agency. 

The Vice Chairman. Is it an important factor in the price ? 

Mr. Hadlick. Is it important? 

The Vice Chairman. Yes. Here is the point of my question. If 
they sell to their own distributing agency at a clienper price than they 


sell to the independent distributors and still lose in their bookkeeping 
arrangement, I mean still lose in their distribution, it would seem 
that their distribution is far more expensive than is the distribution 
cost of the independent agency. It seems to me that is rather an im- 
portant point in this inquiry. 

Mr. Hadlick. The difficulty is in breaking down that refining and 
marketing loss or investment. They treat the refining and marketing 
all together as one bookkeeping operation, as a general rule. 

The Vice Chairman. Does that include their retail distribution as 
well as jobbing distribution? 

Mr. Hadlick. In ordinary booklceeping parlance, I think they keep 
one set of books for that operation. 

The Vice Chairman. It doesn't seem very illuminating, then, if 
they combine their refining and distributing agency, in our attempt 
to investigate what is happening solely in distribution. 

Mr. Hadlick. It is not illuminating, and I have said in the specific 
companies — as I pointed out, the Standard of Nebraska is the best 
example I can give you — that they are losing money in marketing, 
and I believe that to be the case generally. I wish this committee 
with the power that it has, if those books have to be taken down and 
taken apart and audited and found out, could find the actual fact on 
every company; I would like to know the actual fact on every 

The Vice Chairman. What would be the advantage, if any, from 
the standpoint of the public interest of governmental responsibility, 
if it could be brought about, of having a system of bookkeeping that 
would indicate the relative cost of these activities, speaking, for in- 
stance, of manufacturing and distribution? 

Mr. Hadlick. I think it would be very helpful. It would be help- 
ful in our case either to determine whether we are working on a false 
premise or not ; secondly, it would be beneficial to the stockholders to 
know whether they had a company that was operating principally on 
a profit margin over in another business which they probably should 
segregate or get new management for. That would principally be 
the . public interest. I have long hoped that the Securities and Ex- 
change Commission would try to secure that information. I know 
the companies will throw up their hands. As Mr. Pew said, they are 
trying to make a profit on the over-all operation. The profit on the 
over-all operation would be plenty large if you eliminate the inde- 
pendent refiner and independent jobber from this business. That is 
what is happening. 

Mr. AviLDSEN. Mr. Hadlick, isn't it a fact that if the major com- 
panies withdrew from the marketing and turned all the marketing 
over to independent jobbers, that in the course of time they would be 
at the mercy of these independent jobbers? For instance, your 
clients are now willing to work on 2 cents a gallon. Wouldn't they 
later on raise the margin that they would require to work on? 
Wouldn't they extract a larger profit from the major companies if 
they had the power to do so? 

Mr. Hadlick. If they had concerted power to do so they would be 
violating the antitrust laws. If they did not have concerted power 
then you have a competitive market. I don't visualize divorcement 
as being that you are going to get rid of the Standard string of sta- 


tions in the District of Columbia, the Standard bulk plants in Mary- 
land. They would naturally set up a marketing company, give it 
some assets, and say, "There it is, the stock goes back to the people 
that owned it." It would be the same kind of divorcement that you 
had when the Reading Railroad had to get rid of its coal mines, but 
I don't see that the fact that you would be creating a competitive 
market would make anj^ difference there. Suppose the price through 
competitive or bargaining povrer were reduced at the refinery, it's 
competition, If it were illegal competition, that is a different thing. 


The Chairman. What divorcement do you recommend? 

Mr. Hadlick. I am principally interested in divorcing of market- 
ing. I do think that part of it might be accomplished by divorce- 
ment of pipe lines because it would take away these large profits that 
they have, but fundamentally I have been and our organization is 
principally interested in securing legislation such as the Harrington 
bill — the Gillette bill in the Senate — providing for the divorcement 
of marketing. 

Mr. AviLDSEN. Mr. Hadlick, do your clients own their own trucks 
that they haul the gasoline around in, generally ? 

Mr. Hadlick. Speaking of the ordinary delivery system, yes. 

Mr. AviLDSEN. Might we not be faced with another situation where 
the independent trucking companies who own trucks might say that 
the trucking ought to be divorced from the jobbing end? 

Mr. Hadlick. You might. 

Mr. AviLDSEN. Your clients dor't trust the independent truckers; 
they buy their own trucks so they won't be held up on the trucking 
charge. I think that is a similar situation to the major companies 
wishing to own their own marketing organization. 

Mr. Hadlick. Well, I don't see the similarity. I appreciate that 
the custom in the trade is to deliver gasoline by truck within reason- 
able delivery areas. 

Mr. AviLDSEN. But they won't turn that over to another middle- 
man, another man to do that trucking, they want to do it themselves. 

Mr. Hadlick. In the case of this long distance trucking that has 
developed, that has been turned over to common carrier truckers. 
That was the reason 

Mr. AviLDSEN (interposing) . But the local delivery is done by their 
own trucks. , 

Mr. Hadlick. That is right. In other words, that is a plant facil- 
ity just like the pipe line that carries from one still to another is 
a plant facility, but to say that a common carrier truck line from 
New York to New Orleans or a pipe line from Houston to Bayonne 
is a plant facility is just the height of ridiculousness. * 

The Vice Chairman. Unless you do permit the producers to build 
pipe lines, independent people would hesitate to go into a field where 
it has to be proven. 

Mr. HadliCk. Well, 1 would prefer to let the producers and those 
interested principally in the crude lines answer that. The fact is, 
as I look' at it, that there will perhaps in the future have to be lines 
torn up; we have to tear up some railroad tracks occasionally. As 
a matter of fact, we might be better off if we tore up a fifth of the 


mileage today. If there is a pool discovered, there are plenty of 
transportation mediums, tank truck, tank car, and those have been 
the mediums that always precede the pipe line, and you can go to a 
bank and show them: Here is a plat and there is a proven field 
and it is going to produce so much oil, and anyone could get the 
money, just the same as people could borrow the money to build 
the railroads, but I do say I am principally interested in the gasoline 
pipe line which is charging the rate of the rails for the delivery of 
their products. 

The Chairman. Isn't that an assumption to say that anyone could 
get the money to do that? 

Mr. Hadlick. Maybe it is a broad assumption. Senator; maybe I 

Mr. AviLDSEN. Mr. Hadlick, have you any reason to feel that the 
Interstate Commerce Commission will not bring about a reduction 
jn those gasoline pipeline rates if, as you claim, they are making 
exorbitant profits? Have you any reason to feel that the Interstate 
Commerce Commission, when it finishes its present investigation, 
will not bring about a reasonable rate for those gasoline pipe lines? 

Mr. Hadlick. Do you promise not to toss me out if I answer 
that frankly? I don't think so. 

Mr. AviLDSEN. "Why? 

Mr. Hadlick. Simply on the basis that the railroad rates estab- 
lished have been dictated by the major oil companies from time 
immemorial. I tried one of those cases; it is still in the courts; 
I started it on July 15, 1925, to get a rate reduced from group 3 
to North Dakota, and, boy, it is worth your life to get anything 
out of that commission other than what the railroads and the major 
oil companies want. That is not my purpose in being here. I want 
to have this frank. When you find that a pipe line runs from Okla- 
homa to Minneapolis hauling gasoline, taking it away from the 
railroads, they will not meet that rate and yet a mythical pipe line 
is going to be laid between Superior, Wis., and Minneapolis, and 
they will cut the rate in half; I can't have confidence that the rail- 
roads are going to do anything but what the Standard Oil Co. or 
the major oil companies want them to do, and I think the Interstate 
Commerce Commission, not because it wants to do that but simply 
that they haven't got the facilities and the help to keep up with it, 
I don't think they are doing the job; 

Mr. Chantland. Mr. Hadlick, on the point that Judge Sumners 
asked about, the difficulty and the desirability of breaking down your 
refining and marketing costs, didn't you tell me earlier that if that 
pink line of loss on the chart that you had there were broken down 
or could be broken down between the refining and the marketing end, 
as a marketing thing it would show more loss ? 

Mr. Hadlick. That is my best judgment. It is true some of those 
years covered the refiners lost money, but I would say on the whole 
they made money and made more money in the profitable years than 
they lost in the other years, I mean taking the refining operating 

Mr. Chantland. I imagined Judge Sumners was trying to get at 
the fact as between the two. 

Mr. AviLDSEN. Mr. Hadlick, getting back to this Interstate Com- 


you think will happen. First 3'ou say that ihey will not bring about 
a reduction in these gaaoline pipeline rates because the railroads 
'?on't want to do anything that will displease the oil companies, the 
major oil companies. Is that right? 

Mr. Hadlick. That is right. 

Mr. AviLDSEN. In the next breath you say that the I. C. C. can't 
do a good job because it isn't equipped to do a good job. Those two 
statements don't seem to jibe. Which do you mean? Do you mean 
the I. C. C. can't do a good job or the I. C. C. doesn't wish to do a 
good job? 

Mr. Hadlick. Let's put it this way. The I. C. C. haven't done a 
good job. I don't think they will do a good job. 

Mr. AviLDSEN. What basis have you for saying that they will not 
do a good job when they have publicly stated that they are making 
a thorough investigation of gasoline pipe-line rates; that they invite 
everybody to come in and tell their story, to bring in their complaints, 
and they will then make a thorough investigation of the whole sub- 
ject, review all the rates, and make adjustments in those rates where 
adjustments are indicated? 

Mr. Hadlick. Simply on the basis of past history. Let me tell you 
about this rate case I got into, and I wish I never had. We tried 
to bring the rate from group 3, which was 70 cents a hundred pounds, 
down, from group 3 to Fargo. The rate to Willmer, Minn., 175 miles 
away, was 43 cents a hundred, ridiculous on its face. It took us 4 
years to get that rate down. The next week the Standard of Indiana 
apparently saw the railroads on the rate from Casper, which was 70 
cents to Fargo. The railroads filed tariffs, 62 cents a hundred from 
Casper. Those tariffs went into effect over our objection, promptly. 
I could enumerate a number of other instances. The jobbers brought 
a case on the weight of gasoline. Gasoline weighs by the hydrometer, 
by the scale, by any kind of measurement of a liquid that you want 
to use, about 5.9 pounds per gallon. It is billed in every railroad 
in. the United States as 6.6 pounds per gallon. A case was brought; 
it was heard; the major oil companies protested any change. The 
Interstate Commerce Commission endorsed that and said 6.6 was' the 
weight of gasoline. We are paying 10 percent more freight rate on a 
weight that doesn't exist. They asked for reargument — reargument 

The Vice Chairman. Mr. Hadlick, from your standpoint * with 
reference to transportation cost, what would be the difference under 
railroad control, as you have indicated in the price of service* of the 
pipeline companies, and the situation if they were divorced, as far as 
rates are concerned? 

Mr. Hadlick. I would judge, taking that line from Oklahoma to 
Minneapolis, it would be about a cent a gallon, whereas the freight 
rates are close to 3 cents, or right around 3 cents. 

The Vice Chaikman. What w^ould be the reason, tnen, for the rates 
being reduced merely because the pipe line was divorced from owner- 
ship of the major companies? The railroads would be in just the 
same, regardless of whether the major companies owned the line or 
the independent, wouldn't they? 

Mr. Hadlick. I don't know what you are going to do with the pipe 
line profits. I am, T say, interested in tiansportation. 


The Vice Chaibman. Can you answer my question? 

Mr. Hadlick. I don't know whether I understood you. 

The Vice Chairman. Let me take another try at it. It looks like 
to me it is a pretty clear question. From the standpoint of what it 
would cost to transport oil over the pipe lines, what would be the 
difference if that pipe line was owned by independent ownership 
rather than by these integrated companies ? 

Mr. Hadlick. Well, there shouldn't be any difterence in cost, 

The Vice Chairman (interposing). I am not getting it across, I 
am Afraid. As I understand your statement, it is that the rate 
charged for transporting crude oil, maybe gasoline, over the pipe 
lines that are owned by these oil companies is largely controlled by 
railroad influence through the Standard Oil Co. 

Mr. Hadlick. No; the railroad rates are controlled by integrated 
company influence, and where they have a pipe' line the railroads 
do not reduce the rate, but where they are going to build or threaten 
to build a pipe line the rates are reduced. 

The Vice Chairman. Then take it on that explanation ; what would 
be the difference, in that situation between pipe lines that were 
independently owned and pipe lines that were owned by oil com- 
panies, major companies? 

Mr. Hadlick. From our standpoint? 

The Vice Chairman. Anybody's standpoint ; the standpoint of the 
rates over the pipe lines, or railroads, either. 

Mr. Hadlick. I don't know that there would be any difference in 
the rate, but from our standpoint it would simply mean these profits 
would not be siphoned back 

The Vice Chairman (interposing). I understand; I am just deal- 
ing with the one question o:^ rate, either on the railroad or the pipe 
line, as be'tT^een independently owned pipe Hues and pipe lines owned 
by oil producers. 

Mr. Hadlick. Probably no difference. 

The Vice Chairman. I can get your point that by reason of the 
profits in the operation of their pipe lines they can shift those profits 
to other activities where they come in competition with you and 
drive you out of business by using profits made in something that 
you are not engaged in. I can get that point, but my point was with 
reference to the transportation costs. 

Mr. Hadlick. I didn't mean to get into this transportatiqn very 
much. There is just one other point along that line. Down in Kan- 
sas, the common-carrier trucks developed a big business. Jobbers 
sometimes as far as 700 iniles from the refineries either built or 
bought trucks, but in most cases employed a common carrier truck 
to haul gasoline, but principally that was confined tp an area begin- 
ning with Springfield and Joplin, Mo., on the east and running into 
Colorado. That was actual competition from trucks. There is where 
the hotbed of competition was. In other words, people other than the 
major oil companies were beginning to get a part of the transporta- 
tion profit and also to pass it along to the consumer. The railroads 
filed tariffs reducing the freight rates 35 percent not over 30 days 
ago. That was to the integrated companies' interest, to have these 
rates reduced, so that everybody was on a parity in delivering gaso- 


line, but when the plea of the independent refiners of North Texas 
and Oklahoma and Kansas for a rate to Minneapolis that will com- 
pete somewhere near the pipe line was made, they were practically 
laughed at. They turned it doVn cold here after a meeting i'l 
St. Louis late in August. They couldn't do anything about it. 

Mr. Chantland. Mr.' Hadlick, if the pipe lines were divorceo so 
the second column of your chart ^ showed pipe lines by themselves, do 
you believe the Interstate Commerce Commission would prevent that 
percentage of profit on that amount of investment ? 

Mr. Hadlick. No; I think, just my personal opinion is if you ever 
had that situation arise to protect the railroads, which they seem 
anxious to do, they would ask Congress to revive some kind of a 
pooling of profits arrangement and take the profits from the pipe 
lines, leave the rates high and take the profits to pull these railroads 
out of the mud. I don t think they would allow that profit, nor do 
I think they would allow them to reduce their rates to further cut 
under the rails. 

Mr. AviLDSEN. Then yoti think nothing would be gained by di- 
vorcement ? 

Mr. Hadljck. I am just giving that — that so far as reductions 
to the consumer are concerned, we would be gaining, yes ; because the 
profit would rot be siphoned back into marketing. That is the thing 
we are complaining about on pipe lines. We do have a complaint 
on the gasoline pipe lines ; that we can't use them. If you take a box 
over here to ship to Chicago, you take it over and dump it on the 
platform. If there isn't a boxcar ready they put it in the warehouse. 
They can't do that at these places. You have to build terminals 

The Chairman. There is no universal rule you can lay down with 
respect to the comparison of railroad rates and pipeline rates; Is 

Mr. Hadlick. No. 

The Chairman. And in some cases the railroads have refused to 
reduce their rates and as a consequence the pipe line has been 

Mr. Hadlick. Yes. 

The Chairman. In other cases the railroads, have reduced their 
rates and pipe lines have not been constructed. 

Mr. Hadlick. Ye&. 

The Chairman. So is it not the inference there may be other con- 
ditions at work than any we have mentioned here this morning? 

Mr. Hadlick. Quite likely, Senator. I want it understood, my 
main interest is to see that the profits from pipe lines are not used 
over here in marketing. 

Now I just quoted you one 

The Chairman (interposing). Yes; I know tha,t is your premise. 

Mr. Hadlick. That is my main thesis. 

The Chairman. But you brought up in response to a question by 
one of the members of the committee this very interesting subject 
of the interrelation of railroad pipe lines and of railroad freight rates 
and pipeline transportation charges, and I am asking you the ques- 
tion whether from your experience you can draw any definite con- 

' Exhibit No. 1 included in "Exhibit No. 1211," appendix, p. 9155. 


elusion to establish a universal rule, and I understand your answer 
to be "No." 

Mr. Haduck. That is right. I apologize for the condition of a 
lot of this statement. I am merely trying to bring forth what I 
have been able to find in the hope that you gentlemen will give us 
an answer: Whether it is pipeline divorcement or marketmg di- 
vorcement, or what it is. My type of people are going out of this 
business, or are on the way to becoming agents or employees of larger 
companies, and I don't want that to happen. I don't think it is 
socially desirable and I think if it does happen, eventually the 
public is going to pay interest on that red line. 

ThB Chairman. What you say, when summed up, amounts to this, 
and it is a conclusion that has been arrived at in various other indus- 
tries that the integrated company tends to drive the small inde- 
pendent nonintegrated company out of business. 

Mr. Haduck. That is right. 

The Chairman. And that the problem before the country is to 
determine whether or not it is in the public interest to maintain the 
inde'Dendent, nonintegrated operator or to permit the integrated 
operation to grow even greyer than it has grown and absorb a 
greater proportion of the independent, free enterprise of the country 
in all lines of industry. 

Mr. Hadlick. I think that is your problem; I mean I think that 
is what your committee was created for. 

The Vice Chairman. And your clear-cut statement, as I un- 
derstand it, is that the independent could continue on a competitive 
basis if his integrated competitor was compelled to use the resources 
required in the distribution, rather than draw on pipe lines and other 
sources of revenue. , ^ 

Mr. Hapuck. I am positive of .it. 

The Vice Chairman. That is clear-cut. That is what yon say. 

Mr. Hadlick. That is right. In other words, we have the analogy. 
The A. & P. stores and similar chains of distribution have not* put 
the merchant out of business — they have perhaps made him a more 
efficient merchant — except as they are able to reach back and become 
more integrated themselves in the production of sugar or production 
of pr ducts. So long as they stay simply retailers on the same 
basis, no matter how large they are, the merchant doesn't go out 
of business. But when you integrate, you are giving a profit, and 
that integrating applies in many, many industries with which you 
are familiar, whether it is shoes or clothing or whatnot. 

The Chairman. Of course, the contention is always made on behalf 
of the integrated company — andi I am not referring now to those 
which are operating in the petroleum industry alone— that they oper- 
ate more efficiently and that they give the public a better service. It 
is pointed out, for example, in the distribution of fiaod products — 
the argument is made, I should put it this way, that a better grade 
of food in a more hygienic manner is presented to the people now 
than was' distributed before the development of the integrated com- 
pany. Now, 4s it your conclusion from your experience that the inte- 
grated company should be eliminated? 

Mr. Hadlick. I wouldn't eliminate its function in marketing. Let 
an integrated company separate that function. But I think the inte- 


grated company should be broken np so that it stays in either manu- 
facturing or distribution, or in transportation, or in production. I 
don't know where the line should be drawn. 

The Chairman. What is the difference in your mmd. between elimi- 
inating and breaking up ? 

Mr. Hadijck. Well, I want to draw the distinction between a chain 
of stations under one operation as against a single bulk plant or sta- 
tion. If they are buying competitively, as the Robinson-Patman Act 
intended, they should buy on some competitive basis, you don't have 
to worry about the small fellow going out of business. 

The Chairman. Do you contend that the refiner should not engage 
in marketing? 

Mr. Hadlick. Exactly. 

The Chairman. So you would separate these two function^? 

Mr. Hadlick. That is right. 

The Chairman. And put them under absolutely independent man- 
agement ? 

Mr. Hadlick. That is right. 

The Chairman. Would you put them under independent owner- 
ship ? 

Mr. Hadlick. I would so distribute the stock so there would be no 
such thing as a subsidiary company, so that the stock went to the 
owners of the equity in the company. 

The Chairman. Where would you draw the line between permis- 
sible degree of integration and nonpermissible degree? Would a 
refiner be permitted to own production? 

Mr. Hadlick. Well, I have no, objection to his owning production 
because that doesn't hurt my kind of people. You will have to find 
someone else to get the answer to that. I am principally interested 
in our group, naturally. 

The Chairman. And your interest in transportation is only inci- 
dental as it refers to marketing? 

Mr. Hadlick. That is right. 

The Chairman. Your contention is, as I gather, therefore, that 
divorcement of marketing from refining would be a desirable end to 
achieve and that perhaps divorcement of pipe-line transportation 
from refining could also be desirable, but you are not quite so definite 
about that. 

Mr. Hadlick. I am not quite so definite, for this reason : Divorce- 
ment of marketing would accomplish our purpose of separating mar- 
keting, and it wouldn't make any difference to us whether the pipe 
lines were divorced or not. 

The Chairman. You are making the same contention with respect 
to this industry that was made 20 years ago with respect to the pack- 
ing industry. 

Mr. Hadlick. Exactly; and, of course, that was accomplished un- 
der the present antitrust laws, and this might be; I don't know. It 
is a very similar situation. At that time, if you read Justice 
Holmes' decision, the rebate, the freight-rate advantage that was 
alleged in the early cases against Swift and the other four packers, 
was the difference between the carload rate and the less-than-carload 
rate. They would ship a carload of meat to Louisville and sell it to 
the dealer on less-than-carload rate, and that was, in the words of Jus- 


tice Holmes, a hornble example of rebating and unfair use of a 
transportation profit. 

The Chairman. And as a representative of a jobbers' organiza- 
tion you are telling this committee that an increasingly larger pro- 
portion of the independent jobbers are coming under the control 
of these integrated refiners? 

Mr. Haducck. That is right. 

The Chairman. So that they are being transformed from inde- 
pendent jobbers, independent businessmen, to employees and agents 
of the companies ?» 

Mr. Hadlick. That is right. Now, I have a basis for that thesis 
in the rest of my remarks here, and these charts will prove it. 
Roughly, it is simply this : That, with the advent of national adver- 
tising and various inducements, an effort was made to convert the 
jobber from an open-market jobber to a contract jobber. That 
could not be successful without the control over new .sources of 
supply, new refiners ; and proration was evolved, restrictions on pro- 
duction ; and then we had buying pools to buy up the surplus gaso- 
line, and eventually the jobber, particularly where a price war 
would be inflicted upon him like in Detroit and Chicago, would ask 
for a 100-percent contract with a local ^aranty, and that next step 
is acquiring a stock interest, or giving him a lease. There are tricks 
in a lot of those leases, too; they lease the bulk plant for 10 years 
and employ the man for 1 year at a nice commission and then out 
he goes, gradually, as I say, moving these bulk plants from what 
they call weak hands to strong hands, just like they moved the pro- 
duction from what they called weak hands to strong hands, because 
the independent refiner, with the sheriff at his door, had to sell 
his gasoline and get his money to pay. 

The Chairman. And is it your conclusion that if this suggestion 
of yours were carried out, the consumer would not be penalized? 

Mr. Hadlick. Definitely not. 

The Chairman. 'The gasoline and other petroleum products would 
be sold as cheaply to the public and would be of just as good a 
quality as they are now? 

Mr. Hadlick. That is ri^ht. 

Mr. AviLDSEN. Mr. Hadlick, do I understand then that you want 
to divorce the marketing from the refining but allow the major com- 
panies to own these marketing companies, set them up as subsidiary 

Mr. Hadlick. Not as subsidiaries. Set up a separate corporation 
and give it whatever would be a reasonable amount of assets, as 
Barnsdall did here. 

Mr. AviLDSEN. And distribute its stock to the stockholders? 

Mr. Hadlick. To the stockholders. Now, there would still be 
some of these controls in some of these companies. In a small com- 
)any it might be identical control. 

Mr. AviLDSEN. Suppose that were done and i then suppose after 
the marketing company had been qperating a little while it ran into 
a price war with other marketing companies and operated at such 
a huge loss that it soon had to go out of business, wouldn't they 
;!\turally come to this refining company and say, "If we go out of 
business, you will lose all your outlets for your products. We would 

124491— 40— pt. 16, sec. 3— — 3 


like to sell you some stock." Wouldn't that refining company be 
forced to put more money into the marketing company, just to as- 
sure itself of an outlet for its product? I don't see that anything 
would be gained. 

Mr. Hadlock. Under the proposal we had made in preparing the 
Gillette bill that would not be permitted, and that argument was all 
gone through about the Beading Railroad and their coal-mine affili- 
ate. There are a lot of equities that don't appear even in the oil 
business, but here was a railroad company with a $10,000,000-bond 
issue and the bond issue was granted to the railroads simply because 
they owned the coal mines, not because of the value of the road. But 
in the Contmental Inswrwnce Go. case they held the law said divide 
them, and it was just too bad; if someone cracks up in the meantime, 
that is one of the forces of competition. 

What I point out is that there would probably be some of those 
go broke, and there would still be some of our people going broke 
in the competitive struggle, but the rules of the game would be 
somewhere near fair. 

Mr. AviiJ)SEN. In that case, the refining company probably would 
be forced to go broke, too, if it had no outlet. It wouldn't be fair 
to the refiners not to give them a chance to secure an outlet for their 
products, whether that took the form of investing money in an old 
company or investing money in a new company. How are they going 
to sell their products otherwise? 

Mr. Hadlick. They would have to find another customer. 

Mr. AviLDSEN. That might take so long they could go broke in the 
meantime. They have a big overhead, too. 

Mr. Hadlick. Well, there are lots of conceriis 

Mr. AviLDSEN (interposing). I mean if you follow the thought 
through, I think you will find while it itiight hfelp your clients, it 
might be unfair to a lot bf other people. 

Mr. Hadlick. It cannot be more unfair than the present situation 
with 33l^-percent gross being spent in marketing beyond what they 
will allow our people; I mean it js axiomatic that unless the jobber 
grabs one of these contracts or grabs some of their stocks so he can 
preserve his individual salary, if this thing keeps on another 5 years 
there won't be 200 independent jobbers left in this country. 

The Chairman. I think that is a good place to interrupt the pro- 
ceedings. The committee will stand in recess until 2 : 15 this afterr 

(Whereupon, at 12:07 p. m. the committee recessed until 2:15 
p. m. of the same day.) 


The hearing resumed at 2 : 30 p. m. at the expiration of the recess, 
Representative Sumners presiding. 

The Vice Chairman. The committee will please come to order. 


Mr. Hadlick. Mr. Chairman, during the rioon hour I met one of 
my friends whom I have known for a long time, audi whose juognient 
I respect, and he asked me if I meant to convey m my testimony this 
morning that I question the integrity of the Interstate Commerce 


Commission, or any of its Commissioners. My reply was that I did 
not intend to do so, and he led me to believe that maybe I had left 
that impression with the committee. 

I did not mean to question their integrity. I did not me&n to 
say that there was -any illegal influence used over them, but I do 
question their efficiency, and I question their decisions. 

The Interstate Commerce Commission was created to protect the 
small shipper from the machinations of the large shipper and the 
railroads. , That is what it was created for, and I believe in carry- 
ing that out, they -have wholly failed. 

I mentioned this morning the 6.6 Weight of Gasoline^ case^ I. C. C. 
Docket No. 27682. I advised against that case to my people, refused 
to make our association a party to it, but it was nevertheless carried 
on. I told them that it would wind up exactly the way the railroads 
wanted it, and that is what happened. The only time a railroad rate 
in the oil business — maybe that is a little too broad 

The Vice Chairman (interposing). I think you are making your 
explanation a little bit extended, if you will permit an observation 
from the chair. 

Mr. Hadlick. I will cease at that point then. 

The Vice Chairman. You can continue if you like. 

I did have a point here that just came to my attention, that the 
railroads seldom reduce a rate unless it is to aid a large integrated 
company in meeting a competitive situation. I can make it plain by 
just one case, and it is typical. 

- Tip O'Neal built a plant at Cut Bank, Mont., about 2 years ago. 
The freight rates at that time gave him an equalization rate to 
Spokane, Wash., from the coast; in otber words, his rate from his 
refinery to Spokane was exactly that of the rate from Portland to 
Spokane. He began to get some business. I. and S. Docket 4614 
was a proposal by the railroads to reduce the rate from 45 cents a 
hundred to 25 cents a hundred from Portland to Spokane. I see that 
the Commission has ordered the rate of 28^ cents, giving the rail- 
road practically everything that they have asked for". That I think 
is typical. Excuse me for going back and retracking on what 
happened this morning. 

Mr. Chantland. Mr. Hadlick, would you say that the members of 
your association are average or above or below average in volume of 
business done in the field of the 8,000 that you c^U independent 
jobbers ? 



Mr. Haduck. I would say that they are at least in a financial way 
above the average, and perhaps in the amount of gallonage. I might 
explain that there are a number of State associations of jobbers that 
feel the same way as we do who have adopted r^esolutions endorsing 
marketing divorcement, who support our program. There is a large 
one known as the Dixie Interstate, 160-some jobbers using a common 
brand. They endorse our program, yet perhaps only a dozen or 
15 actually pay into our association and we only count those who pay. 

Now we have similar endorsements from the jobbers' associations 
in Iowa, Missouri, Tennessee, South Carolina, North Carolina, Vir- 


ginia, Pennsylvania, and other places. So that I am presenting, I 
believe, what is in the minds of most of those 8,000 jobbers that are 
still truly independent. 

Mr. Chantland. If your association members are better off finan- 
cially and perhaps do a bigger volume of business than the average, 
what do you say about the ability of those lesser jobbers to operate 
profitably on the same margin that you have described for your 
members ? 

Mr. Hadlick. Well, I believe it is a fact that while they are getting 
along on the margin, they are losing money, they are gradually, unless 
given special help or special concession from the refiner, going 
through that transfer from an independent jobber to a controlled, or 
you might say he ceases to be independent at that point. 

Mr. Chantland. I guess i didn't get my question clear.' Can you 
say, from your knowledge and experience, whether the less volume 
and less strong financial jobber can do business profitably on the 
same margin that your membership can? 

Mr. Hadlick. Clearly not ; if He has bank loans he has that addi- 
tional charge to carry his business. 

Mr. Chantland. Apart from that? 

Mr. Hadlick. Well, the only thing is the fellow who is not as well 
financed is closer to the ragged edge. 

Representative Williams. Did you consider the action of these 
major integrated companies in their marketing activity as engaging 
in wasteful and uneconomic activities ? 

Mr. Hadlick. From our standpoint; yes. 

Representative Williams. In what respect? - 

Mr. Hadlick. The crowding of the market with investment that 
is not needed, with salesmen that are not needed, with inducements 
to get business that are not desirable nor needed. 

Representative Williams. Do you consider some of these activi- 
ties which have been described here, for instance the painting, inside 
and out, of the station, and the making of concrete drivewaj^s and 
furnishing additional advertising and perhaps loaning or giving to 
the station and distributors the use of the facilities, the pumps and 
so on, at a nominal rent, and reducing the rent for their place of 
business, and all that, do you consider that unfair to competition? 

Mr. Hadlick. Not unfair under the present law ; no, sir. 

Representative Williams. Well, is it unfair from any standpoint? 

Mr. Hadlick. Well, it is unfair when you look at the whole inte- 
gi'ated picture. By that I mean that I haven't reached a j)oint that 
I am going to in showing the effect of proration and buying pools 
and margin agreements on the jobber. Prior to that time, while 
they were a competitive factor, they were bad business perhaps; we 
still got along, but you add those on top of a falling ceiling and a 
rising floor and you have the jobber in 'between. 

Representative Williams. Well, that is perhaps because of his 
inability, financial standing, and position to meet those conditions. 
Isn't that true? 

Mr. Hadlick. No ; I wouldn't say that was true. He is faced with 
the situation of operating on perhaps a third less than the integrated 
unit. That third less or the third more that the integrated unit uses 
is derived in other branches, part of it the basis of Government con- 


trol, part of it illegal agreements. When you look at that base, our 
ability to compete is seriously impeded. 

Representative Williams. Well, if you cut the integrated com- 
panies loose, as I understand you, from all their other activities 
except the marketing activity, and you want to cut them loose from 
that, too, then the company that engages in the marketing activity 
should be on an equal competitive basis with what you described 
here as the independent jobber. 

Mr. Hadlick. That is exactly what we want, Mr. Williams. 

Representative Williams. Well, I don't see any difference between 
that and the situation now, except as you say they use the profits 
which they obtain in some other branch of the business to offset their 
losses in the marketing operations. 

Mr. Hadlick. That is right. 

Representative Williams. Is that all that is the matter? 

Mr. Hadlick. We feel there is one more consideration, and that 
is the imposition of restrictions on production, partially approved 
by the Federal Government, and then, as I say, the buying pools 
superimposed on those. That gives a floor to your buying. We are 
buying in a controlled market, controlled in every sense of the word 
as if it were controlle by a fiat of law, and we are selling in a com- 
petitive market, not against free completitors, but against competitors 
who are fortified in their marketing operations by their profits 
from part of the industry that is given an undue profit. 

Representative Williams. Do you mean there isn't any competition 
in the buying market from your standpoint ? 

Mr. Hadlick. From our standpoint? 

Representative Williams. Yes. 

Mr. Hadlick. From a competitive standpoint it is almost nil. 

Representative Williams. Why is that? 


Mr. Hadlick. It is because the proration of oil by the various 
States has placed a peg in the price for crude oil. That price is 
basic. By the proration of the amount per well, many independent 
refineries closed. The majors were then able to go after the refinery 
market, to raise that. 

The Vice Chairman. Don't you think it would be well to explain 
how it has come about that proration has closed the independent con- 
cerns and the other concerns have continued to operate? How has 
proration had that result? 

Mr. Hadlick. Well, I think it is axiomatic that if a refiner had 
a certain number of wells in East Texas to supply a refinery and 
that per well allowable was reduced down to the point where he had 
to seek other places to buy his oil, that he was placed at a competitive 
disadvantage, but that isn't what happened all at one time. I can 
perhaps, if I may, go to this next chart. I can show you a little 
better what happened. 

Representative Williams. Do I understand now from your posi- 
tion with reference to the crude oil that there isn't any competition 
in crude oil prices in tha field of production ? 

Mr. Hadlick. No; I am talking about no competition in the re- 
finery prices and tlie pricf^ at which the job])er can buy. 


Representative Williams. I understood you to go back to the 
crude price as the basic foundation for it. 

Mr. Hadlick. That was bolstered by a crude price and the moment 
the crude price starts to. go down, we have such things as the shut- 
down for 15 days so that the price stays almost level at $1 to $1.10. 
Representative Williams. Then you are not contending that there 
isn't competition in the production field of crude oil ? 

Mr. Hadlick. Sir, I wouldn't have the experience as an expert to 
judge that matter. I am interested, and always have been, in mar- 
keting. Any observation I make is only what I have gleaned as I 
went along. 

Representative Williams. There a-i-e a great many States, aren't 
there, where they don't have any proration laws ? 

Mr. Hadlick. That is the one thing that has saved the independent 
jobber from going out of business, the fact that as the tightening of 
production control in the Southwest became more stringent, Michi- 
gan crude came in, and as they got this Michigan law passed, Illinois 
came in. 

Representative Williams. Those proration laws, then, in your 
opinion, are meant to fix output and determine price rather than 
conservation ? 

Mr. Hadlick. That is my firm belief, and I think it is a great 
mistake to fortify them with such acts as the Comially Act, the- 
Interstate Compact. Take the Bureau of Mines forecasts, an activity 
of that kind, it was brought out in the House hearing on the Con- 
nally Act that representatives of the Department of the Interior 
were in Illinois you might say lobbying to get a proration law 
passed in that State. I am told that there will be such a law passed. 
The legislature meets on the I7th of October and I would take odds 
that there will be such a law passed. 

Representative Williams. You think the Connally law ought to be 
permitted to expire under the terms of the act? 

Mr. Hadlick. More than that, I think it should be repealed. 
Reprresentative Williams. Are you in favor of conservation as a 
national proposition at all? 

Mr. Hadlick. Prevention of physical waste and the use of proper 
engineering principles, yes. 

Representative Williams. How can you do that without some kind 
of a conservation law? 

Mr. Hadlick. You need some kind of a law but you don't oeed 
proration. In other words, it isn't a question of prorating per well, 
it is a question of seeing that that well produces the maximum 
amount of oil with the minimum of waste. I am getting onto a 
subject on which I admit I am not qualified as an expert. 

The Vice Chairman. Your contention is that the big companies 
subsidize their selling agencies with money which they take from 
other branches of the service. In other words, they are operating 
the most highly competitive branch of their activity at a loss and 
drawing upon their earnings from other sources in order to put the 
independent producer out of business, that is what you have con- 

Mr. Hadlick. I have at times added that, "in order to put us out 
of business." At this hearing I would rather not make the accusa- 


tion that is what they are doing it for, but that is the result whether 
they are doin^ it by design or happenstance. 

Representative Williams. It is your opinion then that if they 
were put on their own so far as the marketing operations were con- 
cerned, they would not engage in these so-called uneconomic activi- 
ties and do the various things they do now in order to iiapture their 

Mr. Hadlick. I think that is right. 

Mr. AviLDSEN. You mean then you think there would be less 
competition in marketing if they did that ? 

Mr, Hadlick. Not less competition for the consumer business. 

Mr. AviLDSEN. Don't all these losses result from competition? 

Mr. Hadlick. A great many of them are uneconomic to both the 
consumer and to the company. 

Mr. AvELDSEN. But they result from extreme competition, do they 

Mr. BLadlick. If you call capturing a market extreme competition, 
perhaps that is right. 

Mr. AvUiDSEN. It is nothing else, is it? In other words, it seems 
to me you are advocating a plan which would result in less compe- 

Mr. Hadlick. It would be competition on an equal basis. 

Mr. AviLDSEN. What does that mean? 

Mr. Hadlick. In other words, our contention is this, that when 
it comes to the large company and the small company in this or any 
other industry, there comes a time when the smaller company cannot 
survive, not because of his inability to compete in that market but 
because of other things far and beyond, including some help from 
the Federal Government. It is time then for that Federal Govern- 
ment to protect that independent man. In other words, what pro- 
ration is doing — and I am not going to quarrel with it, it is here, it 
is going to be here, but proration is expropriating the money of my 
relatives and my people in Minnesotaj and delivering it to the State 
of Texas and Oklahoma under, the guise of conservation. 

The Vice Chairman". How is it doing that ? 

Mr. Hadlick. Because the economic price for oil is not $1 or $1.10 
per barrel. 

The Vice Chairman. I know, but that doesn't result in taking the 
property away from your people and transferring it to Texas. 

Mr. Hadlick. By the Connally Act prohibiting the crude oil com- 
ing out of the State produced in excess of State quotas, you are 
aiding in raising the local level of your price structure. 

The Vice Chairman, Suppose it was a conservation act, wouldn't 
the relative position of Minnesota and Texas be the same in the 
relative market? 

Mr. Hadlick. No ; I think not. I think we would pay less for our 
fuel oil. I think we would pay less for our gasoline. 

The Vice Chairman. You are not speaking, then, of oil producers 

in your section of the country but oil users? 

Mr. Hadlick. We have no producers in our State. 

I want to leave this straight. If that is economically desirable to 

fix a price for part of the mdustry, I question, without advocating, 

why not give the other person down the line in the business the 


same protection? If you prevent my people from buying in the 
competitive market, why don't you protect us and let us sell in a 
controlled market, controlled by the Government, not by these agen- 
cies that are back here. Or else segregate it, and that is the answer I 
have come to rather than further control. We don't care what you 
do with the price of oil in Texas as jobbers, we might as consumers, 
if all in the marketing branch have to stand on the same footing. 

The Vice Chairman. A big concern that has much production, 
could it depend on independent outlets under the general conditions ? 

Mr. Hadlick. You mean today? 
The Vice Chairman. Yes. 

Mr. Hadlick. Well, s'tanding alouB, maybe not. Put them all on 
the same basis; yes. I think the experiment of Barnsdall— I think 
Mr. Rieser made a noble experiment in trying to run a refining and 
marketing company separated from each other. He couldn't do it 

The Vice Chairman." This question from your testirfiony constantly 
presents itself to my'mirM, assuming your statement to be 100 percent 
correct. How can an independent concern continue to operate if other 
concerns draw upon their earnings from other sources and build at- 
tractive stations and have their gasoline, which has built up a trade 
name — how can you do it? What do you say about it, assuming 
your proposition is correct? 

Can you do anything else that could counteract that situation? 

Mr. Hadlick. At the present time ? 

The Vice Chairman. We are talking about the present. 

Mr. Hadlick. We can either live on the crumbs, or vie can go in 
and sign a contract, and they will give you a contract, they all look 
about alike, agreeing to handle their products 100 percent, agreeing 
to buy not only their gasoline but their lubricating oils and other 
things, and in some instances their tires and things they put their 
brand on. And they gradually take that man from being an inde- 
pendent merchant to the status of a controlled agent or employee. 

The Vice Chairman. Then I understand that to be your answer, 
that regardless of whatever else may be done, if major companies are 
permitted to draw from their earnings, from other sources, and make 
that contribution to their selling activities, you can't as independents 
stay in the business and meet that competition. 

Mr. Hadlick. That is right. The only thing we can do, as I said, 
was eventually become an agent of that company, sell the proj^erty 
to them. 

The Vice Chairman. Let me ask you one other question. If that 
is done and trade practices and so forth remain as they are, could 
the independents remain in business? 

Mr. Hadlick. I wonder if you could have the question read? 

The Vice Chairman. I can repeat it, or maybe you can read it. 

(The reporter read the previous question.) 

The Vice Chairman. Other trade practices, I mean, and economic 

Mr. Hadlick. You mean if divorcement took place? 

The Vice Chairman. If that alone took place. You are coming 
now as a representative of indeperident distributors, seeking, as you 
say, a condition under which you can live ? 


Mr, Hadlick. That is right. 

The Vice Chairman. And my question is if the selling end is 
divorced from all the other activities connected with the oil business, 
could the independent distributors whom you represent remain in 
business ? 

Mr, Hadlick. Absolutely, 

The Vice Chairman. You find nothing else, then, in the practices 
of the major companies which would interfere with the opportunity 
of your continuing to do business? 

Mr. Hadlick. Well, we might find a conspiracy, and I have one I 
want to refer to a little later. If we found those they would have 
to be stamjjgd out, but barring that; no. 

The Vice Chairman. Now, then, we are getting right down to what 
we are talking about. How would you go about bringing about the 
result which you deem to be necessary in order that you may remain 
in business? r 

Mju Hadlick, My idea is expressed best in the Harrington bill, 
H. R, 2318, in the House, before the House Judiciary Committee, a 
companion bill of Senator Gillette in the Senate, S. 448 before the 
Senate Judiciary Committee. That provides for the cutting off, the 
absolute severing, of the marketing function, from the refinery on 

The Vice Chairman. But suppose you did that, and I don't have 
in mind the legislation to which you refer, would there be proba- 
bilities that the persons interested in the big companies would take 
a part of their private funds and invest them in this losing venture 
of selling and leave you in the same situation? I can appreciate 
there isn't much probability, but what is your reaction of judg- 
ment to that? 

Mr. Hadlick. I think that if all were required to do it at the same 
time, as they would by a law, they would set up that marketing de- 
partment as a separate corporation, give it, in view of its fixed assets, 
a reasonable capitalization or reasonable working capital, give it 
such employees as perhaps had been in their marketing department, 
distribute the stock to their stockholders, and from then on they 
would have to operate as we do, or as we have had to in the past. 
If there was poor management they would cease to operate. If there 
were good management they would profit by it. There are a lot of 
economies could be perfected in the marketing of petroleum if we 
didn't have this rush of the various companies — we call them com- 
petitors — I can't call the Socony and New Jersey Co. competitors in 
New England — they are competitors for a purpose; they are com- 
petitors to get control of the market. 

The Vice Chairman. Let us stay right with our knitting on this 
thing and hang right to this proposition. We have gone by one. 
That is, you have said that in your judgment there could be brought 
about a genuine divorcement of the selling end from all the other 
activities; then you could remain in business. Then, you think, as 
I understand your testimony, you could remain in business without 
hurt to the public interest ? 

Mr. Hadlick. I believe so; yes, sir. 

The Vice Chairman. Well, I believe that is about all you are talk- 
ing about, then, isn't it? 


Mr. Haduck. That is the main theme; if you don't do that, Mr. 
Chairman — I don't want to appear to be back-tracking — if you don't 
do that, then we must have some relief against these controls on the 
production of oil that we have talked about. 

The Vice Chairman. It isn't at all probable, as you have indicated, 
that that sort of relief will come soon ? 

Mr. Hadlick. I have no faith in that relief coming. 

The Vice Chaihman. You are not going to go that route strongly ? 

Mr. Haduck. Only before the Federal Congress and only until such 
time as we can secure marketing divorcement. So far we have never 
so much as written a letter to anyone in a State about their own 
particular State law. 


Mr. Henderson. Now, Mr. Hadlick, let me see if I can get at this 
question of competition in a little different way. I gather from 
your morning's testimony and from this afternoon's that you, as an 
independent jobber coming in contact with opposition from the in- 
tegrated companies, find that various kinds "of bait are offered to 
secure exclusive selling arrangements, such as fixing up the sidewalks, 
installing islands, special greasing apparatus, and the like, and you 
feel very definitely tliey are of sufficient attraction to wean a man 
away from an independent status into a controlled status? 

Mr. Hadlick. That is right. 

Mr. Henderson. The inducement given in these cases is enough 
to make the difference between making a decent profit or suffering a 

Mr. Hadlick. In the case of the dealer it might represent the dif- 
ference between operating at a profit or operating at a loss. 

Mr. Henderson. Let me ask you this, Do you know of any cases in 
which the amount of inducement offered is increased as a bait to 
an independent to change his status? 

'{Senator O'Mahoney resumed the Chair.) 

Mr. Hadlick. You are talking now of a dealer for an independent 
station ? 

Mr. Henderson. For a jobber. 

Mr. Hadlick. As to jobbers; yes. I have known some. 

Mr. Henderson. In other words, are there some cases in which 
the amount offered is progressively increased in order to get the ex- 
clusive agency and the exclusive dealing in the major companies for 
tires, lubricants, and the like? 

Mr. Hadlick. That is right. 

Mr. Henderson. Whether it is fair or unfair competition, the legal 
question is obscure. But there is no doubt in your mind that the 
kind of subsidization that goes on is intended to be of sufficient 
amount to get the control status as against the independent status? 

Mr. Hadlick. That is right. 
• Mr. Henderson. I think that is the nub of the whole argument. 
That is, if there is an amount sufficient to change the status, then you 
get something, which independent of all legalities involved, is unfair 
competition. Very oiten it is possible for a layman to see that some- 


thing is unfair in terms of equality of competition which may not 
be illegal. 

Mr. Hadlick. I wanted to be in that position of not passing on tho 
illegality or legality of these practices; of simply presenting a prob- 
lem, in a factual way, and if there is relief due us in the courts, 
why we would assume it would go to the Department of Justice. 
If there is relief due in the Halls of Congress, that the recommenda- 
tion of your committee would so bring it about. 

Mr. Henderson. Do you believe that your group can operate as 
efficiently as any group that has to bear its full cost? 

Mr. EEadlick. I swear we can, and probably cheaper than a chain 

Mr. Henderson. You believe you can operate more efficiently? 
Mr. Hadlick. Tliat is right. 

Mr. AviLDSEN. Mr. Hadlick, do you know of any other industries 
which have had legislation passed for divorcement such as you are 
proposing be passed for your industry? 

Mr. Hadlick. Congress passed the divorcement of banking and 

investment. That was one. It divorced the public utility holding 

system. The Department of Justice has recently brought a suit 

against the motion-picture people to divorce them ; still in the courts. 

Mr. AviLDSEN. What Congress has done. 

Mr. Hadlick. Those are the instances by Congress. Now we have 
the — I have some State instances, if you would like them. Missis- 
sippi enacted a statute preventing corporations manufacturing cotton- 
seed oil and meal from operating cotton gins. North Dakota passed 
a statute preventing or prohibiting the operation or control of 
theaters by motion-picture producers. Illinois passed a statute for- 
bidding grain warehousemen from engaging in grain trade, and of 
course numerous States have passed laws prohibiting the manufac- 
turer of alcoholic beverages, from engaging in or having any interest 
in retail liquor stores. I don't think it is entirely in the realm of 
being unusual. 

Mr. AviLDSEN. But the Federal -Government has done nothing with 
regard to merchandising of products of manufacture. The only 
thing they have divorced is the security. 

Mr. Hadlick. That is right, and of course the coal mines from the 
railroads, the Hepburn Act, and so-called commodities clause. And 
they did, through the antitrust act, divorce the meat packers from 
operating retail stores. I think that is a point, 

Mr. AviLDSEN. But the meat packers distribute their products today 
very much as the major oil companies do; in other words, they de- 
liver their meat products direct to the retail butcher. 

Mr. Hadlick. That 'is right, but the wholesale factor apparently 
was not brought forward at that time. I do not know the history 
of the meat-packing industry well enough to comment on that, but 
all that was asked I know in the petition of the Government was 
for the severance of first the retail outlets and the prohibition of 
the meat-packing companies engaging in the distribution of allied 
lines, such as -canned fruits and so on, in the* grocery line, and things 
of that kind. 

Mr, Henderson. Well, the Federal Trade Commission has many, 


many times ruled against special inducements which have caused an 
inequality of competition, has it not? 

Mr. Hadlick. That is right. 

Mr. Henderson. Has any case been brought under the Robinson- 
Patman Act between an independent jobber and a controlled jobber? 

Mr. Hadmck. None that I know of. There has been one case, 
I believe, relating to retail distribution. 

Mr. Henderson. That is on the half -cent differential ? 

Mr. Hadlick. No; that was the case of a company selling a taxi- 
cab company as a commercial consumer, and the taxicab company in 
turn acting as a retailer, and the amount they were selling them at 
was less than that company's price to ordinary dealers. 

Mr. Henderson. That was a resale price case, not Robinson- 

Mr. Hadlick. No ; it was Robinson-Patman. In other words, they 
sold this taxicab company as a commercial consumer at 5i/^ cents 
off the retail price; actually it was a reseller, not a commercial con- 
sumer, because they in turn sold it to taxi drivers. Their regular 
price to the retailers in town was 4 cents under their market, so they 
were giving li/2-cent discrimination and there was a stateinent issued 
by the Commission, whether it was an order or whether the j)arties 
agreed, I don't recall. 

Mr. AviLDSEN. Mr. Hadlick, wlien these oil companies build side- 
walks and greasing pits, and so forth, for the service stations, don't 
they violate the Robinson-Patman law in doing that unless they do 
it for everyone? 

Mr. Hadlick. I have been of the opinion that they do. I presented 
the slips on a great many installations of pumps, for one thing. I 
contended that the Robinaon-Patman Act amended the law and that 
the old Supreme Court cases relating to loaning of pumps did not 


One of the attorneys in the Commission seemed to agree with me 
and promised to put them through for investigation and subsequent 
hearing, but nothing was done. That was over a year ago. I put 
in two or three at that time, the whole correspondence, everything 
relating to the installation, in an endeavor to get a test. To be very 
fair in the case, I put in both one of our competitor's and one of our 
own member's, so we would get a ruling on it. 

Mr. AviLDSEN. What did you find out when you followed it up? 
When did you talk with them last? 

Mr. Hadlick. Oh, I can't say exactly. We haven't followed it up 

Mr. AviLDSEN. Why not? 

Mr. Hadlick. Well, perhaps in explanation of my own work I 
wasn't prodded in turn by the people who were complaining to me. 

Mr. AviLDSEN. Well, you come to this committee and ask us to do 
something about unfair competitive practices and you don't seem 
to be making much effort to get the properly constituted departments 
of the Government to act. That is the way it strikes me. 

Mr. Hadlick. If you will excuse me, I come here with a complaint 
that does not involve what they do over here in marketing. We can 
meet that loaned equipment, we can build just as many sidewalks as 
they can, if we are on the same margin of profit. The only thing 
is that if we are on the same competitive basis, the tendency will be 


that the loaning of equipment or things others do will be on a strictly 
economic basis. 

Mr. AviLDSEN. Do you mean if all the oil were distributed by 
jobbers that a group of jobbers wouldn't engage in the same com- 
petitive practices that a lot of producers would engage in ? Is there 
something different about their mentality which would restrain them 
from giving away pumps and sidewalks ? 

Mr. Hadlick. Competition would restrain it in the price factor 
instead of the round-about factor. 

Mr. AviLDSEN. You said if they were given the same margin of 
profit as the major companies give their marketing divisions, they 
wouldn't do these things. 

Mr. Hadlick. I say we would do some of them, but th^ tendency 
would be to eliminate the secret and bring the matter out into the 
open as a price proposition. 

Mr. Henderson. Woiildn't it also come to this: that would be 
coming out of the pocket of the jobber and out of his realization 
on the difference between the cost of his material and what he was 
able to get for it, Avhereas in the case that exists now it does not 
come out of the realization on jobbing or on retailing. 

Mr. Hadlick. That is right; it does not. 

I don't think I make myself exactly clear. The jobber can and 
does perform the function as cheap or cheaper than does the inte- 
grated unit, on the same basis that a local grocery efficiently run 
has a lower cost of operation than a chain store, and we are not 
kicking about chain stores. We want the protection applied to our 
business just the same as the Robinson-Patman Act has protected 
the small grocer from the rebates that the chains were able! to get. 
It is just another form in the cycle of the business of rebating, the 
siphoning of these profits. 

Mr. AviLDSEN. I didn't understand that^the Robinson-Patman law 
is limited to the grocery business. It seems to me that ifc applies to 
your business as well as any other. 

Mr. Hadlick. Oh, yes ; but does it apply to a company taking its 
profits that it has made in production and pipe lines and spending 
them in marketing? It does not. Do you see what I mean? I am 
not trying to beg the question. In other words, if these were sepa- 
rated, then the Robinson-Patman Act would apply to everybody. It 
applies to our purchases that we buy in the wholesale market, but it 
does not apply to the sales in the wholesale market from the inte- 
grated company to its subsidiary or to its marketing organization. 

The Chairman. I wonder if our questions are helping you to com- 
plete your statement as you had planned to make it. 

Mr. Hadlick. I will try to run through this jiist as rapidly as 
possible. I think you have taken care of many of the ,items. I would 
like to get onto these charts. ' 

The Chairman. I will be very glad to ask the coinmittee to refrain 
from interrupting you for a few moments if you care to explain the 
charts. ^ „ 


Mr. Hadlick. I would like to point out these charts, copies will 
be given you, and no doubt further study will give you a better 
picture. I will try to ilo it as hastily as possible. 


In this chart here, "Gasoline Prices and Margins, Chicago, 1930- 
1937," the point I want to call to your attention particularly is this 
cross-hatch, the jobber net margin. 

The Chairman. Please define the chart so it will be clear in the 

Mr. Hadlick. I think I did read the title of it, and it appears at 
page 19 of my prepared statement.^ This jobber net margin runs 
over through the years from '30 to '37. 

The Chairman. What do you mean by the net margin ? 

Mr. Hadlick. That is the difference between what the jobber in 
Chicago could buy at and the price at which he could sell. That is 
his net margin. This is a very highly competitive market. The 
margin fluctuated usually up through this period, we will say at an 
over-all profit ; then late in '32, '33, probably breaking even, probably 
losing money. With the advent of production control — and effective 
control over price and production started right here, September 1, 
1933 — you see you have a base price of crude oil on the up grade; 
there have been a few jags since but they are not material. It was 
at this point in the beginning of '35 — here is the refinery market, 
this middle Jine between the crude and the cross-hatch, this is the 
so-called golden stairs — where the buying programs came both in 
East Texas and the Mid-Contment, and because that case is in the 
Supreme Court on appeal I will not refer to it as legal or illegal, 
the result to us is just the same. This, price was raised rather arbi- 
trarily and has since stayed. It started to go off h6re. This was the 
date of the trial, October 4 ; the trial started and the margin started 
widening. You can see from '35 on her6 (there was a price war in 
'34 that wiped out some people) there was a prolonged price war in 
'35, but most of the people in Chicago that were the independent job- 
bers back in these earlier years are now on guaranteed margins, they 
can't stand these long periods, and when they do get into what would 
be prosperity it wouldn't be enough to operate on. 

The next chart which follows in my statement, "Service Station 
Margins and Jobber Net Margins on Regular Gasoline," also has 

The Chairman. Before you go to that., does this chart correctly 
indicate that the retail dealer has a larger margin than the jobber? 

Mr. Hadlick. Oh, yes ; it is about twice, as a general thing, 31/2 to 4 
cents for the retail, and as will be seen on this first chart, during this 
period they were supposed to get a 2-cent margin, but there was 
always this lag behmd these raises in the summer period that really, 
I think, worked out in the Middle West about 1.75 as a margin. 

The Chairman. Does retailing tend to be more profitable than job- 
bing ? 

Mr. Hadlick. Well, I don't know. It would depend on the area 
and the degree of enforced investment in the industry. • 

The Chairman. In Chicago, would it tend to be more profitable? 

Mr. Hadlick. I would say retailing even at 4 cents in Chicago 
would be unprofitable. 

The Chairman. And jobbing at this margin, would it be profitable 
or unprofitable ? 
'•Mr. Hadlick. Certain death'"; Unprofitable. 

1 Appendix, facing p. 9162. *^ 

2 Exhibit No. 4, included in "Exhibit No. 1211," appendix, facing p. 9162. 


Now this chart is for four selected cities. 

The jChaieman. This is the chart entitled "Service Station Mar- 
gins and Jobber Net Margins on Regular Gasoline" ? ^ 

Mr. Hadlick. That is right. This shows New York, Chicago, Du- 
luth, and Des Moines. You will notice in all of them, particularly 
Duluth and Des Moines which lacked the severe price wars that took 
place in Chicago and New York, there was very obviously a com- 
petitive buying power of the jobber down through '34. That has 
accounted for the fact that while crude raised here in '33, the re- 
finery market did not follow irmnediately. It was in the beginning of 
'35 that they were able to hold the refinery market and thereby set 
what they called a 2-cent margin for the jobber. Those show typ- 
ically how they have straightened out. They are practically all the 
same and they run along in here, there was a little bulge in here from 
October 1927 until a short while after the verdict at Madison, and 
then it has been mostly back to 2 cents or less since that time. 

This thing of price 'wars, as was shown here in Chicago — ^those 
are things that occur in the industry below the normal prices passed 
by the market leader. Des Moines and Duluth were comparatively 
free of price wars, Chicago having them more frequently. The higher 
degree of population you have centered, the more the tendency to 
have these price wars, because during these price wars the jobber 
comes in and signs on the dotted line for 1% or 2 cents guaranteed 
margin. He has gone 2 or 3 or 4 months and he has a pay roll to 
meet and he comes in, and of course it is very conducive to getting 
control. The same thing has worked at times on the retail market, 
although there is where the other inducements come in more than 

The charts I have referred to up to the present time are in the 
record, in. the statement of my testimony. I would like to offer for 
th record these additional charts. 

The Chairman. Very well ; it may be so ordered. 


Mr. Hadlick. This chart is the "Price Structure of 'Regular' Gaso- 
line—State of Ohio." 

(The chart referred to was marked "Exhibit No. 1212" and is 
included in the appendix facing p. 9166.) 

Mr. Hadlick. This is for the period 1930 to 1939. During '32, if 
the records were checked, you would find "the "squeeze" put on the 
jobber at that point, and a lot of contracts, 100 percent contracts. 
Were signed. 

Here is a situation, "Price Structure of 'Regular' Gasoline — 
Scranton, Pa." 

(The chart referred to was marked "Exhibit Nd. 1213," and is 
included in the appendix facing p. 9166.) 

Mr. Hadlick. It shows for several years here complete absence 
of a margin. That doesn't mean that a jobber, if he operated there, 
i;iecessarily took that licking. He might have, but the chances are 
he signed up a controlled contract, and when they come out of the 
price war at Scranton he will be handling a major line completely. 

Here is the "Price Structure of 'Regular' Gasoline — Boston, Mass." 

» Appendix, facing p. 9162, 


(The chart referred to was marked "Exhibit No. 1214" and is 
included in the appendix facing p. 9166.) 

Mr. Hadlick. You can see typically here beginning in '33, par- 
ticularly '34, '35, '36, '37, '38, the very great "squeeze" of the jobber 
margin which accounts for the jobbers there not making any money 
in that period, as n matter of fact losing money all the time. 

The Chairman. What accounts for the "squeeze"? 

Mr. Hadlick. The only thing I can account for that is the scrap 
between the Socony Vacuum and the Colonial Beacon for that mar- 
ket, as to who is going to be big in that market. 

The Chairman. A comparison of these two charts, the Ohio chart — 
I was looking at Denver, but I will take the Boston chart — indicates 
that there is no uniformity in the two markets in the margin which 
the jobber has. 

Mr. Hadlick. You were looking at Denver? 

The Chairman. I am looking at Boston now since that is the 
one you were talking about. ^ 

Mr. Hadlick. The only thing in the Boston market is a sort of a 
uniform trend toward this lowering of our margin. In other words, 
this margin Jiere represents the maximum we could buy on an open 
market, such as exists. 

The Chairman. For example, the 1936 margin in Boston was con- 
siderably less than the margin in Ohio for that year. 

Mr. Hadlick. That is right. 

The Chairman. The margin for 1937 was nearly the same in the 
two places, though Boston' was still the smaller. 

Mr. Hadlick. That is right. 

The Chairman. And iji 1938 the Boston jobber margin was con- 
siderably less than that in Ohio. 

Mr. Hadlick. That is right. 

The Chairman. How do you account for that difference? 

Mr. Hadlick. The only accounting for it is that after this period 
in here, in '32, the Standard of Ohio, who make the market, have 
allowed the jobber a more uniform margin. Now this is a State- 
wide chart.^ If we took that in Akron, Ohio, we would find a place 
in here probably smaller than Boston ever hit, but that T brought in 
for a State-wide basis, giving the average for the State. 

In these cities where you get these price wars, as I say that is a 
price below the market leader's price, an open price that sometimes 
we feel is done by design, at least it happens and the result is exactly 
the same whether there is design behind it or not. 

The Chairman. But in any event there is no uniformity appar- 
ently in these various markets. 

Mr. Hadlick. Well, the uniformity would be in the marketing 
area. In other words, Boston. would be typical of all the large cities 
in New York and New England; Scranton would be typical of 
^Pennsylvania ; it is typical of Pennsylvania today, particularly, now, 
the market around Harrisburg. 

Now this chart on Washington, IJ. vj., shows a situation that some- 
times needs explaining. 

(The chart referred to was marked "Exhibit No. 1215" and is 
included in ihe appendix facing p. v'lG6.) 

1 "Exhibit No. 1214," appendix, facing p. 9166. 

2 'Exhibit No. 1212,' appendix, facing p. 9166. 


Here is '31 to '33, that was the time there were peddlers on the 
streets in Washington, D. C, peddlers it developed later to be sup- 
plied by the major companies in many ins\ nces. That brought down 
the market here. The margin has never ueen large in the District. 
As a matter of fact, there is no such thing as really operating in 
the District on a jobber margin as it exists because of expenses being 
somewhat high, unless you have a certain unit guaranteed by a major 
company. Some of them have tried it, to their sorrow. 

This next chart — The Price Structure of "Regular" Gasoline, 
Denver, Colo. — depicts a wider margin than most places, perhaps 
justifiably because of the expenses of operation. 

(The chart referred to was marked "Exhibit No. 1216," and is 
included in the appendix facing p. 9166.) 

Mr. Hadlick. Late in '37 an independent refiner, Bay Petroleum, 
went in there and built a rejfinery. I don't make any accusation but 
I notice the margin now is lower and the price is lower. It is a 
typical price situation that exists in the Rocky Mountain area. 

This chart her« I had enlarged because it is the Price Structure 
of Regular Gasoline in Des Moines. 

(The chart referred to was marked "Exhibit No. 1217," and is 
included in the appendix facing p. 9166.) 

Mr. Hadlick. This is for a city but it could be used for the State 
of Iowa as a whole, because the city of Des Moines apparently had 
no price wars during that period. It shows a general lessening of 
this margin the jobber is working on, down to '35, '36, '37, and '38. 
As I say, that is a typical midwestern chart. 

This chart — Price Structure of "Regular" Gasoline, Birmingham, 
Ala. — is typical of the so-called Standard of Kentucky territory, 
with a "squeeze" in '34 and j.ight on to date. I don't know of any 
independent jobbers operating there now. There are some oper- 
ating under marginal contracts which I would say represented con- 
trolled jobbers. 

(The chart referred to was marked "Exhibit No. 1218" and is 
included in the appendix facing p. 9166.) 

The Chairman. What is the general inference that you draw from 
these various charts? 

Mr. Hadlick. I wanted to show the general trend of the jobber 
margin from 1930 to 1938. The trend is downward, and spliced 
in with some examples where they would show price wars and how 
tho^e prices could go. 

As I say, we are faced with not only the increase caused by legis- 
lation such as social security, wages and hours, and different things of 
that kind, but we are constantly faced with this lowering margin, 
and to repeat again, we are in a heck of a fix. 

The Chairman. Of course, the jobber is a middleman, isn't he? 

Mr. Hadlick. I don't like the term "middleman," Senator, because 
that denotes a desk broker as a rule. The jobber has a substantial 
investment. If he is in the middle between the producer or the 
manufacturer and the consumer, yes. 

The Chairman. You want this committee to distinctly understand, 
I suppose, that in your opinion this jobber, whether he is a middle- 
man or not, should not be eliminated. 

Mr. Hadlick. Distinctly so. 

Now, I have made slight reference to two cases at Madison"; Wis. 

124491— 40— pt. 16. sec. 3 4 


I think it important that I call your attention to them. The 
first was an alleged program of pool buying of gasoline from the 
I independent refiners in the East Texas field and from the Mid-Con- 
tinent area. The jury brought in a verdit of guilty; some were 
;sentenced. The decision was upset by the circuit court, reversed, in 
other words. It is now on appeal to the Supreme Court, The ques- 
tion is not one of fact, Was there a pool-buying arrangement? The 
question is whether it was an illegal or a legal one. The effect is the 

- There was a second case, and that was of more importance to our 
group, and that was the agreement of certain companies to limit 
the margin of the independent oil jobber in the middle western area. 
Now as to that indictment, most of the defendants came in and plead 
nolo contendere and paid their fines. In the first group it amounted 
ito $360,000 in fines and something like $40,000 in court cost. 
. Now I cite those instances to offset this remark of Mr. Pew where 
he said : 

There has been much criticism, much loose talk of the industry as a monopoly. 
Much of the criticism has been found on analysis to be based on misinforma- 
tion and prejudice. 

Now I am not prejudiced against anyone, but when a concern 
comes in and the group that came in and plead nolo contendere to 
that jobber-margin case, they were, for the purpose of that case, 
'pleading guilty; so that I will not be challenged m the back of the 
room, as I was over in the House hearing,^ I would like to read just 
a couple of lines from Justice Stone's decision in the case of C. A. 
Hudson V. United States (272 U. S. 451), where he said, as to a 
plea of nolo contendere : 

Like the implied confession, this plea does not create an estoppel but, like 
the plea of guilty, it is an admission of guilt for the purposes of the ca§e. 

There is only one other decision in the Supreme Court on this 
plea of nolo contendere and that was in the case of United States 
V. N orris (281 U. S. 619), the Court citing the Hudson case and 

The Chairman.* I think, Mr. Hadlick, we all know what a nolo 
contendere is. 

Mr. Hadlick. Well, I heard a lot of objections to my contention 
that it was an admission of guilt for the purposes of the case. 

The Chairman. I know. As you have yourself pointed out here, 
we are not arguing back and forth, we are trying to develop facts. 

Mr. Hadlick. I wanted to just point out one other factor that has 
aided in this control and that has been the contracts of the Ethyl 
Corporation, which is an organization owned by the Standard Oil 
Co. of New Jersey, General Motors, and du Pont. The Government 
has brought suit on that and, on May 19, 1939, Judge Bondy ^ held 
(that the agreements between the Ethyl Gasoline Corporation and its 
refiner licensees, restricting sales of treated gasoline to those jobbers 
only whom it formerly licensed, unreasonably restrained trade and 
are violative of the Sherman Antitrust Act. 

1 See footnote 1, p. 8845, supra. 

» William Bondy, U. S. District Court, So. Dist of N. Y., 27 F. Supp. 959. 


There is one other set of charts I wanted to call to your attention, 
if you will bear with me. They are entitled "Gallons of Gasoline 
One Bushel of Corn Will Buy," "Gallons of Gasoline 100 Pounds of 
Wool Will Buy," and "Gallons of Gasoline 100 Pounds of Cotton 
Will Buy." 

(The charts referred to were marked "Exhibits Nos. 1219, 1220, 
and 1221," respectively, and are included in the appendix on pp. 
9168, 9169, and 9170.) 

Mr. Henderson. "Why didn't you get these on a gallon-for-gallon 
basis, Mr. Hadlick? 

Mr. Hadlick. That is a thought, too. [Laughter.] 

This chart here shows merely the gallons of gasoline that 1 bushel 
of corn will buy in Iowa. It is simply showing that with a constant 
price for gasoline, you have varying quantities of what the farmer 
can buy with what he produces, and 1 selected commodities like corn, 
wool, and cotton because there were no elements of monopoly or 
control, at least effective control, that entered into them, except per- 
haps the year '36. 

Mr. Henderson. On wool? 

Mr. Hadlic^.. Certainly. 

Mr. Henderson. Can you make that statement about wool, that 
there is no ' ontrol ? 

Mr. Haklick. I mean control of production. 

Mr. Henderson. You mean in the United States? 

Mr, Hadlick. In the United States ; yes. 

The Chairman. Would you say that of corn and cotton ? 

Mr. Hadlick. I think they were partially effective in '36 as to 
corn, partially effective in '34, '35, and '36 as to cotton, but I doubt 
the real effectiveness. I think those prices were more the general 
price trends and the regular competition that works up and downi 
I am not putting the charts in to prove any particular theory oi 
point. I thought we wQ,uld give you some idea of the people on th^ 
consuming side buying with what they have to sell to get the money 
to buy gasoline. 

This one ["Exhibit No. 1221"] particularly on cotton is illustrativel 

I have discussed in my statement,^ Mr. Chairman, the various pro- 
duction controls, and we had a little argument here a'bout it thii 
afternoon so I will not go into that. There is only one other point 
and I will npt bring it up or discuss it unless the committee desired 
it, and that is this question of basing points in the oil industry. ' 

The Chairman, I think that might be very interesting, if yoU 
will give us your point of view and such facts as you have acquired. 


Mr. Henderson. Before you go to that, Mr. Hadlick, I want to ask 
one question I failed to ask when we were discussing the competition 
between the integrated company and the independents. You testii 
fied that not infrequently the integrated company would offer addii 
tioii^l bait to get 100-percent control and' usage of their products in an 
outlet. As between the principal integrated companies, do they go 

» "Exhibit No. 1211," appendix, p. 9151. 


around to the 100-percent outlets and, if onfe of them is offering a 
rental concession of $200, is it customary to offer $250 or sufficient 
amount to take that jobber or retailer away from the already 100- 
percent-controlled unit? 

Mr. Hadlick. As between two major companies? 

Mr. Henderson. Yes. 

Mr. Hadlick. That happens when a major company directly or 
through affiliate desires to break into a niarket. You will find that 
in the trade you might say they lay the law down, they are going 
to get their 15 percent of such-and-such a market, and if you meet 
it, boys, it's going to have to go down, they are going to get that 
much of the business. That happens, as I say, in these competitive 
struggles between large integrated organizations when they decide 
to break in. For instance, when Shell broke in, it was common talk 
in the trade. They would set a certain amount to go get dealer ac- 
counts and they would go after them, and they got them. 

Mr. Henderson. Take the situation you have in Washington or 
Chicago, where all the majors are already in. Then is there com- 
petition on the additional inducements to get the switching to take 

Mr. Hadlick. It simmers down as they get what they think they 
are entitled to. Those Chicago price wars were simply on the basis 
of the Socony-Vacuum building a larger plant or acquiring a larger 
plant in Chicago and deciding they were going to be in the Chicago 
market, and they were going to take so much business, and they did. 

Mr. Henderson. So in your opinion it is a matter of trying to get 
a definite place in the sun rather than a day-to-day operation after 
presumably the pie has all been cut. 

Mr. Hadlick. That is right ; and usually because of some nearness 
of either crude or a transportation agency or the building of a re- 
finery, or something like that, a market that they not only can get in 
but stay in. 

Mr. Henderson. Is it different, then, from the kind of inducements 
they offer to independents about which you are complaining? Is 
there a distinction there? 

Mr. Hadlick. Well, they sometimes include inducements in getting 
the jobber; but, if they do, it is a pretty iron-bound contract or a 
portion of his stock to stay with it. In other words, the jobber is a 
pretty independent individual and when they sign him up they sign 
him up so he is bound, and if he doesn't go along they have the 

Mr. Henderson. Let me see if I can get this a little more clearly. 
My question was. Is this kind of competition between the majors 
seeking to get a definite share of the market different from what goes 
on when inducements are offered to independents to become exclusive ? 
Or does the independent get caught in the other kind of war and is 
this thing you are talking about merely incidental? 

Mr. Hadlick. The independent usually gets caught in between be- 
cause they pick not only on the other integrated customers, they pick 
on the jobbers' customers as well, and occasionally these fellows will 
run to cover, and go along. We had a situation in Chicago where 
Wagonner stations went over with Socony-Vacuum; I mean they 
bought control. Then another took a contract with them; various 


others went with the major lines because they saw this thing on the 
wall, that Chicago was going to be the battleground between Socony 
and Standard of Indiana, and why get out there and be shot ? It 
was a case of their having assets enough to stay there to weather 
the war ; they ran to cover. Now that they are there, they will prob- 
ably stay. 

Mr. AviLDSEN. But there was a real war between those two large 
integrated companies? 
Mr. Hadlick. Oh, I think definitely it would be admitted by all. 
The Chairman. Your point, I take it, is that the jobber suffers 
because of the condition in the integrated industry which was de- 
scribed this morning, which enables it to make a profit on production 
and transportation while losing it on refining, and the jobber also 
suffers when the big fellows begin to compete among themselves, 
only he suffers a little bit more then than in the first instance. 
Mr. Hadlick. That is right. 

Mr. Henderson. I gather that what you are mainly speaking about 
is a rather continuous process, somethmg on the order of what was 
developed in Saturday's testimony.^ 
Mr. Hadlick. That is regular ; that is every day. 
Mr. Henderson. I wanted to determine whether you make a dis- 
tinction in your own mind between this sporadic competition by way 
of inducements which goes on between the majors and that which is 
constantly going on against the independent. 

Mr. Hadlick. Fortunately for thousands of these jobbers, these big 
fights between the majors have been concentrated at points like 
Boston, New York, Philadelphia, Pittsburgh, Chicago, Detroit, Kan- 
sas City, metropolitan areas, that the other jobbers didn't happen to 
be in. The jobbers in those territories have been pretty well put 
through the wringer several times in the past 15 years. 
The Chairman. Those are the big markets. 
Mr. Hadlick. Those are the big markets. 

The Chairman. So you are testifying in the big markets the job- 
ber has been substantially eliminated and that he operates in the 
smaller markets which serve the less thickly populated areas. 
Mr. Hadlick. That is right. 

Mr. AviLDSEN. Mr. Hadlick, do these jobbers you speak of handle 
only petroleum products or do they handle other products, automobile 
accessories and so forth? 

Mr. Hadlick. There has been a distinct tendency in the past 7 or 
8 years for them to take on the handling of tires, batteries, and 
things, and some of them have built up full line automotive acces- 
sory distribution. Some of them have been able to recoup their losses 
or to prevent their losses from getting larger by putting on those 
othei* lines. 

Mr. AviLDSEN. Do you find that where they diversify the line they 
have a greater chance of surviving ? 

Mr. Hadlick. Yes; that is right. Tires, of course, tne last year 

have been a loss again, but over all, if I Were in the jobbing business 

I think that is exactly what I would have done, taken on these other 

lines because gasoline just wouldn't carry the load. 

Do you want to go into this basing point ? 

The Chairman. If you please, I think it would be very interesting. 

* October 7, 1939. included in Hearings, Part 15. 



Mr. Hadlick. I have no ax to grind in this question of basing point. 
I thought maybe some observations as to leadership in the industry 
might be interesting. I want to be frank, I don't understand why 
there was so much beating around the bush on it. The fact is this : 
In ail but a few States, which I will mention later, there is some one 
meriber of the old Standard Oil group prior to the 1911 split-up 
that is the market leader, that is tlie market leader for the general 
market, just like the Standard of Ohio last Saturday raised its price 
one-half cent over Ohio., I will give you the picture of who they are 
so that you will have it for the record. In the State of New York 
and the States of New England the Socony -Vacuum Oil Corporation 
is the market leader. In the States of Pennsylvania and Delaware, 
the Atlantic Kefining Co. is the market leader. In the States of 
New Jersey, Maryland, District of Columbia, Virginia, North and 
South Carolina, the Standard Oil Co. (New Jersey) or of New Jer- 
sey, one of them,^ is the market leader. In the State of Ohio the 
Standard Oil Co. of Ohio is the market leader. In the States of 
Kentucky, Mississippi, Alabama, Georgia, and Florida, the Standard 
of Kentucky is the market leader. In the States of Tennessee, 
Louisiana, and Arkansas, the Standard of Louisiana is the market 
leader. In the States of Michigan, Indiana, Wisconsin, Illinois, Min- 
nesota, Iowa, Missouri, North and South Dakota, and just recently 
Nebraska, the Standard Oil Co. of Indiana is the market leader, and 
I should have included Kansas in there. In the States of Montana, 
Wyoming, Colorado, and New Mexico, and parts of Idaho and Utah, 
the Continental Oil Co. is the market leader. In the States of Wash- 
ington, Oregon, California, Nevada, and Arizona, the Standard Oil 
Co. of California is the market leader. 

In the State of Oklahoma, the market leadership is exchanged at 
different times or they take turns between Magnolia, a subsidiary of 
the Socony-Vacuum, and the Continental Oil Co. In the State of 
Texas, it is between the Magnolia and the Texas Corporation. 

Now, they set the normal price in their areas. If you sell below 
that price and they consider competition worthy of note — that is,, 
you are taking their business — they will meet your price in that 
locality. That is the thing that brings about all these Christmas- 
tree decorations that we talk about, giving to get dealers, because 
if you can just find a way to give a fellow something without cutting 
the price you can go down the line' and get business without them 
lowering that price. 

Now, as to the raising of a price above that — above their posted 
price for the general market — a year or so ago Shell Petroleum tried 
to raise the market three-tenths of a cent a gallon, figuring with the 
increasing crude and increasing pfined price the market justified it. 
Nobody met it. This summer Sinclair Refining Co., Consolidated 
Oil, raised the price a half a cent all over the United States. Some 
integrated companies met it, others did not. As a general thing, the 
market leaders did not meet it and the price receded. Now, when 
these people tell you as a rule about meeting or taking the lead in 
raising a price, I am talking other than these market leaders, they 

'■ See Hearings, Part 5, pp. 1861-1950, for testimony on the basing-point system, its 
history and economic consequences. 


are telling you the truth; they perhaps at sometime or other have 
raised the price. 

If the price is 2 or 3 cents below normal, in Philadelphia, it may 
get that market back; it may be that the market leader just folds its 
hands and says, "We .met the Sun Oil, or the so-and-so, and if they 
want the market back let them raise it," and the one who lowered the 
market might raise it, and they might follow, or they might not. 

But this air of mystery, and how they arrive at what they will 
charge for a general market, that is an air of mystery and entirely' 
within their own province, but the fact in the trade that it goer 
on and who does the raising and lowering of these general levels 
is well known. 

The Chairman. Well, what is the machinery by which a particulai 
leader acquires that distinction in a particular area? 

Mr. Hadlick. Well, with the exception of Oklahoma and Texas 

The Chairman (interposing). Distinction or responsibility; I don't 
know which is the word. 

Mr. Hadlick. It is perhaps the largest seller; that is, the largest 
gallonage and the largest stake in that market. 

The Chairman. Well, now the tendency, I suppose 

Mr. Hadlick (interposing). I am not saying this critically, Senator.' 

The Chairman. I understand; there is nothing critical about this,' 
as far as I am concerned, and I suppose that is true of you. I suppose! 
the tendency would be to keep the price up, would it not ? 

Mr. Hadlick. Well, I think that is their policy. That was what ' 
Mr. Swensrud said ; all that the market would bear, and I think that 
is a correct statement. 

The Chairman. What tends to bring the price down? 

Mr. Hadlick. Competition from independent refiners. There was 
a time when there was competition from jobbers — getting less and 
less, but there was a time. 

The Chairman. As the jobber's margin narrows his ability to com- 
pete is decreased ? 

Mr. Hadlick. That is right; it is decreased. Now, these prices, 
if you want to get to basing point, aiid then I think maybe the ques- 
tions will be a little clearer. There was a time when the basing 
point for gasoline was Tulsa, Okla., plus freight to Portland, Oreg., 
or to Portland, Maine. It didn't make any difference. That was 
the basing point, and tha^ is what gasoline sold for. Ship a tank 
car, Avhether you shipped it from some other point or not; now as 
independent refiners, who came into different positions, ability to 
ship up the east coast, it is broken down to probably, oh, maybe there 
are 30 or 40 basing points. 

The basing point is the point at which they can get the maximum 
out of their transportation operation. Now that is the basing point 
that is used. For a time it looked like your State might have real 
competition for the consumer. There was the Midwest Refining Co., 
that was sold to the Standard of Indiana. Then, there was the White 
Eagle and the Parko. They were independent concerns. The Wliite 
Eagle was taken over by Socony-Vacuum. Parko was taken over by 

You haven't any chance for competition, so that your price in 
Wyoming is the group 3 market, plus freight to the eastern part of 
Wyoming, and the Portland, Oreg., price, plus the freight from 


Portland to the western part of Wyoming. Now that is regardless 
of where the gasoline is made, and they have some very ingenious 
arguments for that price-basing system. I want to point out that it 
breaks down only when. an independent refiner comes in there and 
starts selling gasoline, and doesn*^t want so much for his transporta- 
tion charge. 
The Chairman. What is group 3 ? 

Mr. Hadlick. Group 3 is generally the Tulsa market. In the 
Interstate Commerce case, Mid-Continent, 1924, they established four 
groups. No. 1 was the two refineries at Kansas City, No. 2 was the 
refineries in Kansas, No. 3 was Oklahoma. They just took them as 
a group. No. 4 was north Texas and part of Louisiana. I think 
there was a fifth one. But from that group, whether it was Bartles- 
ville, Okla., or Ponca City, gasoline moved through a junction point 
like Kansas City to points beyond at exactly the same rate, and that 
was the basis, that was the start of calling it group 3 ; they used to 
call it Tulsa. 

The Chairman^ Do I' understand you to testify that this system 
is still used? 

Mr. Hadlick. As much as possible, it is uspd. Now it is being 
interfered with. At one time within my personal knowledge gaso- 
line was shipped from Oklahoma to Michigan. There was an inde- 
pendent refinery there. White Star, later taken over by Socony- 
Vacuum. Then production came in and Michigan began to ship 
gasoline out. 

Nominally the price to Michigan is set on group 3, plus the freight, 
less what it takes to hold the business from group 3. Do I make 
myself clear? In other words, that as these refining points — now 
it is moving to Chicago — with these refineries springing up in the 
Illinois field, group 3 is going furtlier back. 

The Chairman. Mr. Swensrud testified that the tendency now is 
to use the price at destination, I think was the phrase that he used. 

Mr. Hadlick. Whenever you sign a contract 100 percent that is 
what you use. Whenever you buy in Ohio he is absolutely correct, 
you buy at destination,. It was well known in the trade that a number 
of years ago, the price of gasoline in Ohio, delivered any place in the 
State, was the Oklahoma price plus 3 cents. The actual freight rate 
varied from, I think, .286 to .316, but they just made it flat, anywhere 
in Ohio they would meet that Oklahoma price. Now, because of gaso- 
line pipe line coming as far as St. Louis or Chicago, boats up. the 
river, they have reduced that now to 2 cents. They are only grabbing 
two cents of that freight. I am just pointing out, not trying to 
justify their position, but to give you the facts that these prices from 
a basing point, there are many basing points, may change overnight, 
if you get independent competition. 

question or establishment of uniform gasoline price for whole 

UNITED state's 

The Chairman. What possibility would there be of developing a 
standard price for gasoline throughout the United States, and what 
method would have t^ be followed to develop such a standard? 


Mr. Hadwck. Oh, I don't know as it would be possible. A regu- 
lar one price for the whole United States would perhaps seriously 
jeopardize some people and be very profitable to others. As I say, 
I am not condemning this system. 

The Chairman. I am just asking questions about it. What would 
prevent that ? What would militate against such a uniform price or 
standard price? 

Mr. Hadlick. Well 

The Chairman. How would the jobber feel about it? 

Mr. Hadlick. Well, I suppose if he was given his margin, enough 
to live on, he would be so happy, regardless of the price, particularly 
if the Federal Government would enforce it — I am just talking of 
the human nature in them, but you have factors -that enter into this 
thing, such as we will take the gasoline delivered in the mountains 
of North Carolina as an entirely different problem than the gasoline 
delivered in your district, because there are no supplies available in 
North Carolina ; it has to tome to seacoast and it probably has to 
come in on tank car, and then hauled probably 40 miles to a dealer, 
so you have factors of cost there that enter into the thing that just 
couldn't work out. Now the freight rate structure from the jobber 
standpoint is sometimes hopeless. 

You take the rate from Shreveport to Jacksonville, Fla., will prob- 
ably be 314 cents a gallon, but you can tanker it around there for 
half a cent a gallon. 

The Chairman. Well, do all the factors of cost in the price of gaso- 
line vary with the area? 

Mr. Hadlick. I would think they would vary with the area and the 
competition they had to meet. 

The Chairman. These charts which you have shown indicate that 
the jobbers' margin varies with area? ^ 

Mr. Hadlick. That is right. 

The Chairman. Does the retailers' margin vary with area? 

Mr. Hadlick. It varies in two- degrees. It varies, in the Middle 
West it is 31/2 ; in the East it 'is 4 cents. That is more or less 
arbitrary. There have been a few places wher-^ the dealers in remote 
areas, with the coming of the Iowa plan, felt that they had 3 months 
or 2 months summer season and were entitled to a better price, and 
they took it. 

The Chairman. You say it is arbitrary. What makes it arbitrary ? 

Mr. Hadlick. Well, it is the amount set by the market leader. 

The Chairman. Well, if this <Jegree of uniformity can be main- 
tained in the jobbers' margin, what reason is there that a similar uni- 
formity should not be maintained in the price the consumer pays ? 
• Mr. Hadlick. That is a difficult question to answer, I suppose 
with the control features it might be worked out. I know this, that 
these margins 

The Chairman (interposing). Of course I am not talking about 
control, features. I am not even suggesting that. I am discussing 
the situation as it now exists. In the situation as it now exists, with- 
out control, as I understand you, the jobbers' margin is relatively 
uniform, as you have described it? 

1 "Exhibits Nos. 1212-1218.'- 


Mr. Hadlick. That is right. 

The Chairman. Now then, what reason is there that the price to 
the consumer should not be equally uniform? 

Mr. Hadlick. Well, you have overlooked the factor of what the 
market will bear. That is the factor in the setting of the market 

The Chairman. Doesn't that factor affect the jobber as well as the 
retailer ? 

Mr. Hadlick. It affects him if he is buying on an open market, 
but if he is buying on a controlled market he has to run and take 
whatever is given him, and that is what he is doing, taking what is 
given to him. We just get the crumbs off the table. 

The Chairman. I take it, then, that in your opinion the jobber 
occupies the least favorable position in the entire industry ? 

Mr. Hadlick. I believe he does, sir. I believe he does. 

Mr. Henderson. Take this case you cited of Shreveport to Jackson- 
ville. Suppose a jobber in Jacksonville buys a supply of gasoline 
and it is shipped by tanker, what transportation rate does he pay on 
it in that case? 

Mr. Hadlick. Well, he would — a jobber would buy in Florida from 
the terminal of one of these companies, Standard of Kentucky, or 
Cities Service Oil, and he would pay just enough under the Shreveport 
price, plus freight, to keep him from going to the rails, don't you 
see? If it was equal he would buy on the rails. 

Now there are some shadings in there. They had some competition. 
A fellow was able to put in some termijials and was able to give them 
competition, but he has been bought out since. I have one — I had 
overlooked this item, and I don't mean to unnecessarily keep you, • 
but there was an item in the Congressional Record during the debate 
on the railroad bill this last May 25 in which Senator AVlieeler made 
some remarks and quoted some testimony from an Interstate Com- 
merce case on this question of whether or not the transportation sav- 
ing is passed on to the consumer. I wonder if I might have permis- 
sion to read it to you ? 

Here is what Senator Wheeler says [reading] : 

There was considerable testimony in tlie discussion before the committee and 
in the hearings before the subcommittee as to whether or not if there aren't 
any savings in rates because water transportation may be cheaper than rail, or 
motor transportation, between the same points, the shipper gets the benefit of 
the reduced rates. In a recent hearing before the Interstate Commerce Com- 
mission, held at Memphis, Tenn., in February 1937, in fourth section, application 
No. 17413, involving rates on gasoline and kerosene from the Baton Rouge group 
to Alabama points, Mr. A. M. Stephens, general traffic manager of the Standard 
Oil Co. of Kentucky, testified: 

"We do not take into consideration any evaporation charges in connection 
with any surveys we made for any individual terminals because we find that 
on all of our inland waterways terminals we amortize this investment. As to 
our inland waterways terminals we usually amortize them within 2 or 3 years. 

"In other words the money we make on our water terminals we put in our 
pocket. We do not pass it on to the consumer. No other oil company does 
that I know of, except where there' is price competition and naturally in that 
connection we have a depreciation set up that may last for 10 years but in 
the meantime we have fully amortized the investment shown in our accounting 
procedure and the economy that we realize is credited to the P. and L. 
accoimt for margin. 

"We have great savings in our water terminals, inland waterway terminals 
that we eliminate entirely evaporation and insurance in all of our calculations. 
That enters into our general accounts by reason of the great number of water 


terminals operating at the present time on the South Atlantic coast the gulf 
coast and the Ohio river and the evaporgition lost from our aggregate figures 
is less than 40 points. 

"In other words it is less than one-hf f of one percent. I have the figures 
here showing our evaporation losses in connection with all of our transportation 
to these Ohio River points which I have indicated and I will be glad to file 
them for the record if they are so desired." 

On cross examination Mr. Stephens testified as follows: "Question by Mr. 
Beck. Mr. Stephens, with regard to the impossibility of imposition of tolls 
on these rivers has that received the full consideration of your committee in 
dealing with these matters? That is do you view things like that for any 
particular time in the future? 

"Answer. Oh yes ; we exercise our judgment and foresight in the considera- 
tion of all of these matters. We have found that none of the other companies 
are passing any of this money on to the consuming public." 

I think that is all I have unless there are some further questions. 
The Chairman. Mr. Snyder, do you care to ask some questions? 


Mr. Snyder. Yes. Mr. Hadlick, with reference to the membership 
of your association, are your jobber members mostly under contract 
with the so-called major oil companies for the distribution of 

Mr. Hadlick. I would judge that probably 80 percent of them 
have some kind of a contract with a major company. 

Mr. Snyder. Does a large percent of the 80 percent of the so- 
called jobbers contract with the major companies? 

Mr. Hadlick. I would say no, not as a general rule. Some of 
them have been forced to take them. 

Mr. Snyder. Have you been familiar with the so-called jobber 
contracts over any period of time? 

Mr. Hadlick. \Yell, I have watched the development from 1924, 
on, yes. 

Mr. Snyder. Take the Middle West area, for instance. At what' 
price does the major company j6bber buy gasoline from the major 
company under those contracts? 

Mr. Hadlick. Usually it is 51/2 cents under the Tulsa price in the 
publication known as Oilgram, or under the MidAvest market of 
the Chicago Journal of Commerce. 

There has been a tendency recently for those contracts not to refer 
even to that, but simply to the Si's cents under the supplier's tank 
car posted at the point, not of shipment, but of delivery, in both cases 
with a provision for a split in case of a local price war. 

Mr. Snyder. I wonder if you are correct on the first part of your 

I will rephrase the question. Prior to the adoption of the Iowa 
plan, what price did the Midwest jobber pay to his Midwest supplier? 

Mr. Hadlick. That depends on how much prior. These contracts 
of course keep coming on. Before that it was just a contract to 
guarantee supply. A man bought on the basis of the going price in 
group 3. That was the usual rule throughout the Middle West. 

Mr. Snyder. Was there not some sort of a clause in those con- 
tracts that he bought at the average of the averages of Piatt's Oil- 
gram in the Oklahoma market and the Chicago Journal of Commerce 
in the Chicago market? 


Mr. Hadlick. I see. It was not the average of the averages. It 
was the average of the high and the low, I believe. 

Mr. Snyder. Of each of the journals? 

Mr. Hadlick. Of each of the journals for that day, the particular 
day of shipment. 

Mr. Snyder. And did he buy, then, at a delivered price, the freight 
from Tulsa being included ? 

Mr. Haduck. If the all-rail shipment came from group 3 usu- 
ally it was strictly f. o. b., and he paid the freight, but if there was 
a shipment like from Argentine in Kansas or El Dorado, or any 
of those points, he would be billed for group 3 plus the saving of 
the freight. If it was billed from a water terminal or from the 
pipe-line terminal like Des Moines or Minneapolis, or a point be- 
yond, he would be billed at the delivered price and that would in- 
clude the freight rate from Oklahoma. 

Mr. Snyder. Suppose the gasoline moved from the group 3 area 
to Des Moines, for instance, oy pipe line, and then was shipped a 
short distance by tank car to this jobber's bulk plant. Did he then 
p'ay the pipe-line rate plus the local tank-car rate, or did he pay the 
full rail freight from group 3 to his bulk plant ? 

Mr. Hadlick. He paid the full rail freight rate from the gi^oup 3 
to his bulk plant. I have seen it handled in both ways. That is, 
sometimes he pays what little freight there is and has added to his 
bill the difference ; sometimes they bill him and they have the freight 
charged to the refinery. 

Mr. Snyder. Normally did those invoices pass on to him the dif- 
ference between the freight rate and the pipe-line cost of transport- 
ing the gasoline? 

Mr. Hadlick. If it had no relation to the pipe-line cost it re- 
stricted the freight rate. 

Mr. Snyder. Now, take another instance. 

The Chairman. May I interrupt? Do you mean by that that 
even though the gasoline were transported by pipe line and there- 
fore at a much less cost, the charge would be made as though it had 
been shipped by rail? 

Mr. Hadlick. That is right. The same would be if a jobber at 
Sheridan, Wyo., got a carload from Casper, he would pay the 
price at group 3 plus freight to Sheridan. 

The Chairman, Even though it moved by truck. 

Mr. Hadlick. That is right. 

Mr. Snyder. How about the ability of the independent jobber to 
buy pumps and equipment and loan them to dealers for the nomi- 
nal rates which the integrated companies charge for such equip- 
ment ? 

Mr. Hadlick. Well, in that respect we are just like the small 
merchant buying shelves and fixtures for his store as compared with 
A. & P. It is a serious handicap, but not one which we could not 
overcome in the normal processes of a marekting operation stand- 
ing on what there was in the market to handle the product. Natu- 
rally, if a major oil company buys 10 carloads of so-and-so's pumps 
delivered over a year, they will buy them for probably as much as 
half what we would buy them for when we buy 2 or 3. 


Mr. Snyder. I believe this afternoon you were questioned at some 
length as to the effect of the so-called unfair practices upon the inde- 
pendent jobber. I have in mind his financial ability to finance the 
particular practices, concreting of driveways, painting of stations, 
paying of electric bills, advertising allowances, and other things. 
Has he the finances to compete with the major companies on that 
basis ? 

Mr. Hadmck. No; he does hot. The very fact that these sta- 
tions are gravitating from jobber distribution to major distribution 
is the best answer to that. I mean he may not have his own sup- 
plier to fight in his market, but he had 9 or 10 others of the majors 
who are out trying to get those places: I admit that that is a seri- 
ous problem, particularly with our margin such as it is, but it is 
not one that cannot be surmounted if this other thing is corrected. 

Mr. Sntder. The 2- to 2i^-cent margin would not cover those 


Mr. Hadlick. It just does not, and of course it is one of the factors 
that is driving the major company's cost of marketing up. 

Mr. Shaughnesst. There is one point I would like to make there. 
A major company would normally bear the expenses of advertising 
and of delivery to the jobber, would it not, Mr. Hadlick, in a case 
of branded products? 

Mr. Hadlick. Yes; that is right. 

Mr. Shaughnesst. So there is a distinct competitive disadvantage 
against the unbranded jobber. 

Mr. Hadlick. Oh, yes; the unbranded jobber has a distinct dis- 
advantage. As a matter of fact, in some cases, Mr. Shaughnessy, the 
closer the jobber gets hooked up to the major company, and that is 
this control over his activity, the more they would see that he stays 
in business, but keep him controlled, and they have been known to 
let the jobber in on their buying contract f 9r compressors and pumps 
and things of that kind. 

Mr. Shaughnesst. We have been told here that advertising c6mes 
to about a quarter of a cent a gallon. I imagine it is at least another 
cent a gallon for delivery expense. 

Mr. Hadlick, Oh, I think, yes; speaking of dealer accounts. 

Mr. Shaughnesst. So it would be ll^ cents. 

Mr. Hadlick. That is right. 

Mr. Sntder. Did you attend the hearings when Mr. Dow and Mr. 
Swensrud testified ? ^ : 

Mr. Hadlick. I did. I believe I missed just a part of Mr. Dow's, 
but I heard substantially all of it, and I heard all of Mr. Swensrud's. 

Mr. Sntder. Do you agfee with Mr. Swensrud that the differen- 
tial advantages of the majors in transportation are passed on to the 
consumer? ; 

Mr. Hadlick. I do not agree with him except that they are passed 
on when they are forced to pass them- on by competition. 

Mr. Sntder. Ijti other wordsj do you give this idea, that if you do 
not have the independent refiner or jobber to set the competitive pace, 
then none of the savings would be passed on? Is that youi* point? 

Mr. Hadlick. That is exactly it. If we hadn't had competition I 

* Testimony of both gentlemen appears in Hearings, Part 15. 


think gasoline today would be selling at Portland, Maine, at the 
group 3 price, plus freight. 

Mr. O'CoNNELL. You mean also if the independent jobber were 
eliminated there would be no competition between the integrated 
companies which would have the same effect insofar as the price is 
concerned ? 

Mr. Hadlick. There would be these spasmodic forays between 
major companies, yes; even if the jobber were eliminated. 

Mr. O'CoNNELL. Are those forays usually on a price basis? 

Mr. Hadlick. Not so much as they are on a get-the-dealer basis or 
get-the-jobber basis. 

Mr. O'CoNNELL. I recall when Mr. Swensrud was testifying he 
indicated that at least insofar as his company was concerned their 
policy would permit of a reduction in price only after there had 
been secret price cutting and undercutting on the part of their com- 
petitors, and I drew the inference that that sort of undercutting, 
so-called, was mainly on the part of so-called independents, and it 
seemed to me that it miglit follow from that were there no inde- 
pendents in the field and were we left only with integrated com- 
panies following the same price policy as the Standard Oil pf Ohio^ 
that we wouldn't have so much pressure at least from price reduc- 
tions. Would that follow ? 

Mr. Hadlick. That would be the natural thing unless someone in 
a directors' meeting decided they ought to borrow $40,000,000 and 
build a refinery at such and such a place and get sqme outlets. Now, 
Mr. Swensrud's company, prior to his connection, was the leading 
marketer in Ohio, but they got down at oVie time as low as 11 percent 
and everybody was a leader in Ohio. They adopted strong tactics 
and went in and brought their percentages back to better than 30 
percent, and they used all the Imown tactics at that period Once 
they got back to what they thought was normal leadership they went 
back to normal business and I think perhaps he is describing his 
present company policy correctlj^. 

Mr. O'CoNNEix. Are the tactics that you refer to that a major 
company indulo;es in in an attempt to capture a larger part of the 
market ordinarily practices which are in the nature of price cuts, 
or are there other devices for obtaining a larger share? 

Mr. Hadlick. Well, there are mainly other devices, except that we 
will take the dealer business, at one time when the Shell broke into 
New England it was quite customary, they paid a dealer $500, $1,000, 
whatever cash advance, a sort of gratuity, it he would sign a contract 
to buy their products for a year or twOj shading all the way from a 
cash outlay down to painting his buildings and concrete drives and 
floodlights and compressors and light bills and things of that kind. 

Mr. O'CoNNELL. In an industry which operates the way the oil in- 
dustry apparently does, of having openly posted prices and public 
announcements of any price change, does it appear to you that a 
price reduction in and of itself would have any substantial effect 
insofar as increasing your volume of business is concerned? 

Mr. Hadlick. Well, perhaps not. 

I don't know just how to elaborate on that. Price informa*-^on is 
quick. Everybody knows it. With price leadership, I imagine it 
is just the thing that happens. 


Mr. O'CoNNELL. I am just trying to develop in general how much 
of an incentive there is for a price reduction in the hope of capturing 
a larger share of the market. If the price reduction is made by a 
market leader or any other company doing a substantial part of the 
business, and i§ followed, as apparently ordinarily happens, by an 
immediate price reduction by the other suppliers in the industry, 
just what effect can that have insofar as capturing any more business 
is concerned? 

Mr. Hadlick. I am sure I don't know. The history of the industry 
simply has been, as Mr. Swensrud very frankly told you, that the 
market leader took all the market would bear. Independent competi- 
tion has tended to reduce and encourage them to pass on part of 
this transportation profit to the consumer, but only when forced to. 
Maybe you and I would do the same thing. 

Mr. O'CoNNELL. I have no doubt. It is perfectly natural, it seems 
to me, for a competitor or anyone in business to attempt to buy his 
products as cheaply as he can and to sell them for as much as he 
can and I take it that the' regulator is competition, and I always 
thought the emphasis of competition was ordinarily on price. I am 
just wondering how much the emphasis is on price in the oil industry. 

Mr. Hadlick. I am frank to admit I think the emphasis is on these 
other things rather than price, and I was trying to think of another 
industry that had strictly price leadership, but I am not familiar 
enough with them to know. 

Mr. Shaughnessy. Perhaps I can clarify that. You have stated 
that the major hope of effective price competition in the oil industry 
is upon the existence of independent refiners for ability to sell under 
the market. Isn't that true? It follows from that, that at the pres- 
ent there is not effective competition in service stations in your opin- 
ion. Is that correct? In price? Because there are substantially no 
independent refiners supplying major markets in any volume today. 

Mr. Hadlick. That is right. The competition is all within, this 
margin that the dealer is tossed, I mean this 4-cent margin. 

Mr. Shaughnessy. Hasn't there been any distinction since the 
Iowa plan was inaugurated? 

Mr. Hadlick. Well, in some cases there have been complaints now 
that the companies were through with the operation of a station, 
"Get all the gallons through that you can and let the dealer take 
the thing on the nose." We have had numerous complaints. I think 
some of them are in the records of the Pennsylvania investigation and 
others that the salesmen have encouraged them to reduce their price 
to get more gallonage. 

Mr. Shaughnessy. Keduce the posted price or give secret rebates? 

Mr. Hadlick. Usually it is. Give secret rebates. In our metropoli- 
tan areas it is pretty generally now 50 percent of the market goes 
in secret rebates, not so secret. 

Mr. Shaughnessy. So when you 9 re speaking of price leadership 
you are speaking of price leadership at the tank wagon rather than 
the service station. 

Mr. Hadlick. At the present time ; yes, sir. The price leadership 
in the service station did occupy a period I would say roughly be- 
tween 1926 and 1935. There was both price leadership on the tank 
wagon and on the service station. Since the Iowa plan there is no 


attempt generally to lead on the retail market; it is just generally 
assumed in most territories that the market will be 4 cents and 3i/^ 
to retailers. 

Mr. Shaughnessy. The Iowa plan was also accompanied by disin- 
tegration of these various rules they had under the code, rules against 
loaning equipment, painting st ''ice stations, and all those things 
are out. 

Mr. Hadlick. That is right. 

Mr, Shaughnesst. And the retail market then is more or less 
open to these competitive devices other than price. 

Ml. Hadlick. That is right. 

Mr. Shaughnessy. And in the price field there are the secret 

Mr, Hadlick. That is right. 

The Chairman. What is the minimum margin on which a jobber 
can operate; in your opinion? 

Mr. Hadlick. Well, there are twb factors involved, one is natural 
terrain, and the other is competition. Theoretically in n market like 
Richmond, Norfolk, these smaller metropolitan areas, he could prob- 
ably operate, on 2 to 2% cents. In larger metropolitan areas, tak^ 
Chicago where they have union rules, two men on a truck, driver and 
salesman, things of that kind, it might take a little more than that. 

The Chairman. Is there any tendency to recognize that minimum 
in any of the contracts that the jobbers make? 

Mr. Hadlick. Yes ; the Continental lip to this price war in Denver 
and in the Rocky Mountain area generally recognized that 3 cents 
was a fair margin to the jobber. The Standard of Ohio have gen- 
erally recognized that 2i/^ was a fair margin. Standard of Indiana 
only recognizes 2, and there's the rub. Wherever it is 2 cents^it 
seems to be below. I would say roughly it is between 2 and 3 cents. 

The Chairman. When it is recognized, in what manner is it rec- 
ognized ? 

Mr. Hadlick. In the posting of a price over and above group 3 plus 

The Chairman. Is there ever any contractual recognition? 

Mr. Hadlick. Yes ; in a great many cases they will sign a contract 
guaranteeing under the local market provided that local market is 
the normal price. 

The Chairman. In many cases? Is that the rule in the industry? 

Mr. Hadlick. Well, it is hard to say that it is the rule. I would 
say that probably 30 to 40 percent of the contracts are that way 
now. It is the bait that gets a man. It is security, it is the old-age- 
security plan. 

The Chairman. It doesn't fix the margin ; it merely fixes the mini- 
. mum. It is a guaranty. 

Mr, Hadlick, It is a guaranty that it won't go below 2 cents, 2^^ 
or whatever they set or agree upon. 

The Chairman, For what period are these contracts ordinarily 

Mr. Hadlick. Usually for the period of a year, sometimes with 
option for automa'tic renewals unless 90 days' notice is given. 

The Chairman. Have you any other suggestions to make to the 
committee as to what should be done in your opinion? 


Mr. Hadlick. No, sir; just a recommendation to divorce marketing 
and we would be very happy. 

The Chairman. And your recommendation applies solely to this 

Mr. Hadlick. That is the only industry I know anything about. 
I am going to confine it to that. 

The Chairman. Well, Mr. Hadlick, we are very much indebted 
to ybu. Unless some members of the committee desire to ask any 
other questions, thank you so oiuch for your statement and readiness 
to answer the questions. 

Tomorrow the committee will hear three witnesses, maybe four: 
Mr. Irving B. Culver, of the National Oil & Supply Co., of Newark, 
N. J. ; Mr. Lester S. Scott, of the Loughborough Oil Co., of Wash- 
ington, D. C. ; Mr. Arnold W. Craft, of the Craft Oil Co., of Avbca, 
Pa. ; and Mr. B. W. Ruark, general manager, Motor and Equipment 
Wholesalers Association, oi Chicago, 111. 

The committee will stand in recess until 10 : 15 tomorrow morning. 

(Whereupon, at 4 : 35 p. m. the committee recessed until 10 : 15 a. m., 
Tuesday, October 10, 1939.) 


124491 — 40— pt. 16, sec. 



United States Senate, 
Temporary National Economic Committee, 

Washington^ D. C 

The committees met at 10 : 40 a. m., pursuant to adjourmnent on 
Monday, October 9, 1939, in, the Caucus Room, Senate Office Build- 
ing, Senator Joseph C. O'Mahoney presiding. 

Present: Senator O'Mahoney (chairman); Representative Wil- 
liams; Messrs. O'Connell and Brackett. 

Present also : William T, 'Chantland, representing the Federal 
Trade Commission; Quinn Shaughnessy, representing the Securities 
and Exchange Commission; Clarence Avildsen and Robert McCon- 
nell, representing the Department of Commerce ; Representatives Dis- 
ney (Oklahoma) and Mapes (Michigan) ; Hugh Cox, W. B. Watson 
Snyder, F. E. Berquist, and Christopher Del Sesto,- Special Assist- 
ants to the Attorney General; Roy C. Cook and Leo Finn, Depart- 
ment of Justice. 

The Chairman. -The committee will please come to order. The 
first witness is Mr. Craft. Will you be sworn, please, Mr. Craft ? Do 
you solemnly swear that the testimony you are about to ^ve in this 
proceeding shall be the truth, the whole truth, and nothing but the 
truth, so help you God? 

Ml". Craft. I do. 

The Chairman. You may proceed. 



Mr. Craft. Mr. Chairman and members of the committee, my name 
is Arnold W. Craft, part owner and manager of the Craft Oil Co. 
of Avoca, Pa. First, I wish to express my appreciation for appear- 
ing before this committee and because of my inexperience m ap- 
pearing before such eminent committees I beg your indulgence while 
I endeavor to be as brief as possible. 

We are a small, very small, independent concern. 

The Chairman. Are you associated with any other corporation of 
any kind? 

Mr. Craft. We are associated with the Quaker State Oil & Refin- 
•ing Corporation, Oil City, Pa. 

The Chairman. In what way? ■ 

Mr. Craft. In distributing their oils and lubricants. 

The Chairman. But you are not associated with them in a cor- 
porate way? 



Mr. Craft. Not any whatever. 

The Chairman. Do you have any subsidiary corporations? 

Mr. Craft. We do not. 

The Chairman. Are you the subsidiary of any corporation? 

Mr. Craft. We are not. 

The Chairman. Where were you chartered? 

Mr. Craft. State of Pennsylvania; Harrisburg. 

The Chairman. What is your capital stock? 

Mr. Craft. It is a partnership organization. 

Tlie Chairman. It is not a corporation? 

Mr. Craet. No, sir; partnership. 

The Chairman. How many partners? 

Mr, Craft. Two. 

The Chairman. What is your investment? 

Mr. Craft. Our investment is about $26,000. 

The Chairman. Very well. 

efforts of integrated companies to discottrage competition from 
independent brands of pennsylvania oil 

Mr. Craft. We are a small independent concern, operating in 
10 counties in northeastern Pennsylvania. We are marketing our 
own products and distributing, as I stated before, the Quaker State 
products. This brings us in direct contact with a diversified retail 
trade ; therefore we are bound to become acquainted with their condi- 
tions and difficulties. I do not appear here in the interest wholly 
of the Craft Oil Co. and jobbers or wholesalers, whichever you may 
term them, in the category that we are in. I also appear here in 
the interest of a large army of small independent retail businessmen 
in this industry who know little or nothing about the work of this 
committee, and because of their inadequate circumstances and limited 
capacities never obtain a hearing, although we do realize that they 
are a vit^ factor in our economy. 

It appears while contacting these many independent men that there 
is a^ philosophy injected into our economy which has by application 
been demonstrated to be a dangerous one, and that philosophy is: 
If an enterprise is promoted and ends in failure then it cannot be 
considered an economic loss because it merely amounts to money 
passing from the hands of a larger group of people into the hands 
of a smaller group of people where it is usually used for more 
productive purposes. With this I cannot agree, because it is obvious 
that such a procedure, in effect,: narrows the channel through which 
our wealth must flow, thereby creating control which in itself is 
power and certainly it cannot be denied that power is force. It is 
force, and the integrated oil companies have for years lived by force 
and still are living by force. By narrowing the channel through 
which this stream must flow, the people become victimized by a 
system as deadly to free independent enterprise as is, we might say, 
totalitarianism to their very freedom and liberty. 

The economy of a democracy, as I see it in the small business, 
cannot withstand this onslaught indefinitely. It is the very antithesis 
of the fundamentals of a democracy. Libertarian economy, free, 
small independent enterprise is the very lifeblood of a democracy, 
and in such an economy/ there is little or no room for materialistic 


collectivism unless we are satisfied to sacrifice libertarian economy in 
such a changed order. 

Gentlemen, with reference to my statement which has been filed 
with this committee, the question arises — indeed^ it is one of great 
moment and magnitude, otherwise I doubt if this committee would 
be assembled — are the American people to become an enslaved 
segment of humanity instead of a civilized democratic segment be- 
cause of the obvious ills which today are so prevalent in these United 
States of ours, which has, we are told, been designated as the land 
of freedom, liberty, and independence. 

We may, through devious ways, deny to the people economic lib- 
erty, economic freedom, but eventually there will be found hidden 
away a spark of will and courage, that will be fanned and will 
ignite, and the will to live will again consume those people, and with 
our economy foremost in thought, let us refer to my statement for 
some actual definite information in regard to this grave matter which 
is so vital to our economy, and that is the small independent busi- 
ness, particularly as 1 know it in the petroleum business, which is so 
rapidly being backed out its own back door. 

We will refer to this statement with which you gentlemen are 

(Mr. Craft's prepared statement was marked "Exhibit No. 1222''' 
and is included in the appendix on p. 9171.) 

We list herein but a portion of the many cases experienced over 
a period of years. It is our belief that they are a sufficient number, 
without further burdening you, to assist in definitely proving that 
the objective of the integrated companies is to destroy independent 
competition through their devious methods of operation. 

Does it not appear that gasoline price wars are perpetrated by 
these interests to effectuate depressed conditions among the split sta- 
tion operators so that in holding out to them as a bait extra margin 
on gasoline and other concessions they are enabled to bring them 
under control? Can we fail to realize that once their objective is 
gained, and it seems that it will be if present conditions continue to 
exist, the margin will through devious methods be adjusted down- 
ward until the operators of the 100-percent outlets ultimately 
find themselves operating on the same margin that existed when they 
were operating split stations? 

With these established conditions as prevalent as they are, can we 
reasonably hope to escape economic distress, particularly in this 
industry? [Reading from "Exhibit No. 1222":] 

Case No. 1. Salsbury Service Station, Chinchilla, Pa. Bought our oil April 
19, 1934. 100 percent Sun lease at the time. Two days after delivery we re- 
ceived a telephone call from Mr. Munsey, branch manager for the Sun Oil 
Company at Pittston, Pa., demanding that we remove the oil and sign from 
the property of this account because of the fact that the property was under 
lease to the Sun Oil Company and such lease prohibited Mr. Salsbury from 
handling competitive products. We did not comply with the demands as made, 
but continued to sell and deliver our oil to said party until, through antagonis- 
tic endeavors of representatives of the Sun Oil Company, Mr. Salsbury even- 
tually discontinued the handling of our products. In contacting Mr. Salsbury 
shortly after the Sun Oil Company had made their demands for the discon- 
tinuing of the handling of our products he related the following. A tourist 
stopped at his station one morning stating that our sign was the first he had 
seen for quite a few miles and asked if he had the oil in the S. A. E. 30 grade 
in sealed cans. When he infetmed him that he dtd the owner of the car stated 


that he would like to have the oil drained and the crankcase refilled with eight 
quarts. While this operation was taking place the occupants of the car, who 
numbered seven, had lunches and refreshments at his place and then filled up 
with gas, which incidentally was Sun gas, before leaving. The entire sale 
amounted to over $8. Mr. Salsbury stated that only for our sign he would 
not have enjoyed this particular sale and was at a loss to understand why the 
Sun Oil Company should take the stand that they were taking. 

The Chairman. Didn't you say that he had a hundred-percent 
lease with the Sun? 

Mr. Craft. That is right. 

The Chairman. Wasn't that reason enough, I mean legally and 
contractually? We are. not talking about the results. 

Mr. Craft. Legally and contractually at that time undoubtedly so. 

The Chairman. The Sun Oil Co. had a right legally to enter into 
this contract. 

Mr. Craft. That is right. 

The Chairman. And he had a right legally to enter into the con- 
tract with the Sun Cp. 

Mr. Craft. Th^t is right. 

The Chairman. And if in consideration for the sale of the right 
to sell the Sun Gasoline and the right to lease a Sun station he agreed 
to handle only Sun products, that was a binding contract, was is not ? 

Mr. Craft. That is right. 

The Chairman. So the question is not so much whether in partic- 
ular instances operators, lessee operators, who had 100-percent con- 
tracts, wanted to violate those contracts and were prevented from 
violating the contracts by the protests of the company with whom 
they had the contracts, as it is to determine from the point of view of 
public interest whether contracts of that kind which according to 
your point of view operate to eliminate the independent businessman 
are proper and desirable. That is our question, isn't it? 

Mr. Craft. That is right, Mr. Chairman. 

We have no quarrel with the legality of those contractual obliga- 
tions, but it is the fact that the companies upset and distort our 
libertarian economy. However, should this type contract tend to 
restrain trade, then its legality certainly would be questionable. The 
history of this type contract apparently bears out the fact that it 
has been used for the purpose of accomplishing that very thing. 

The Chairman. The question then comes down to this, not whether 
you can cite individual instances to bear out your point of view, 
but whether statistically it can actually be demonstrated that the 
tendency is toward the elimination of the small independent operator. 

Mr. Craft. That is the question. 

The Chairman. Now what is your statement with respect to that 
general question? 

Mr. Craft. To that question my statement is that due to conces- 
sions offered by the integrated companies to these independent retail 
operators who have been greatly distressed because of price wars 
which have not been started by the independents, they have found 
about the only way out is to concede to the propositions offered to 
them by the integrated companies, and they sacrifice the independence 
of their station to the 100-percent lease. 

The Chairman. There seems to be no doubt that the major com- 
panies have offered various inducements -of one kind and another to 


obtain these outlets. That has been testified to by practically every 
witness who has discussed this question, whether the witness repre- 
sented independents or represented majors, but I have heard it stated 
that despite the fact that the majors tried to get new outlets, acually 
there are more independent outlets now than there were say a few 
years ago. What is your conclusion with respect to that? 

Mr. Craft. For clarification on that independents, just what do we 
mean when we say independent ? Do we mean a station that is oper- 
ating outside of the realm of company owned stations? 

The Chairman. When I speak, of an independent in this instance, 
I mean men like you. 

Mr. Craft. No; I can't agree with that. With the independents 
like ourselves that have been able tb survive it is because of the fact 
that we have added probably side lines in order to meet our pay rolls 
and keep our little , industry together, where if w€ were to wholly 
depend upon the petroleum industry, because of 5ur outlets being so 
limited that it is only a matter of time when we would close our doors 
and still further add to the unemployed. 

The Chairman. Well, .here were four gentlemen on the stand last 
week ^ who testified that there is an increasing number of undivided 
stations; that is to say, an increasing number of stations which are 
under contract with the majors to sell only the products of the majors. 

Mr. Craft. I beg pardon. Did you say an increase? 

The Chairman. Yes. Is that your experience? 

Mr. Craft. That is right. 

The Chairman. Now if it were stated that as a matter of fact that 
is not the case, what would you say? 

Mr. Craft. Well, I would say then, particularly in the territory in 
which we operate, that I either am unable to make the proper deduc- 
tions from observation, or else someone has just given misinformation, 
or else that might predominate in other places in the United States. 

The Chairman. So far as your experience is concerned, you are 
testifying quite to the contrary, that the independent is being grad- 
ually eliminated? -■■: 

Mr. Craft. Absolutely. 

The Chairman. And turned into either an employee or a controlled 
lessee by the trend in the industry? 

Mr. Craft. That is right. 

The Chairman. Now is that in your opinion general throughout 
the country? 

Mr. Craft. With every independent that I coiiie in contact, and 
talk with, that is their story, and I have canvassed from Jersey City 
to Chicago and St. Louis. 

The Chairman. When you say you have canvassed, what do you 
mean ? What have you done ? 

Mr. Craft. I mean that I have conferred with the independents, 
with independent organizations; I have labored in, so to speak, fur- 
thering the cause of. the independent in a way that they could see 
what wtis happening to their business and the future of their families 
by becoming a controlled outlet, 

^ See testimony of Messrs. Grisell, Reitz, Suhr, and Ramsdell, Saturday, October 7, 
1939; Included in Hearings, Part 15. 



The Chairman. Well, now what do you think ought to be done? 

Mr. Craft. Well, of course, Mr. Chairman, my opinion is very in- 
significant as compared with the opinions and findings of this com- 
mittee. I realize that. 

The Chairman. Don't entertain that opinion at all. This com- 
mittee is just a group of ordinary persons who happen for a brief 
time to have a little responsibility; that is all. 

Mr. Craft. In answering the question, I would say divorcement 
of marketing from other branches of the industry. Just so long as a 
company can subsidize any other department that they are operating 
wholly to their advantage, not to the advantage of the general welfare 
of the public, particularly then consider that department. The inde- 
pendents, whether jobbers as we are or whether an independent little 
businessman on the corner, cannot compete fairly with such opera- 
tions because they have very limited assets to draw frdm. 

The Chairman. Well, it boils down to a conclusion on your part 
which apparently is shared by many others, that the integrated 
company does not serve the public mterest so far as it tends to 
eliminate the small independent free enterprise." 

Mr. Craft. True, I do, because of this fact, that when we have a 
c?ianged order, which this is bound to bring about if it cortinues, 
it eliminates the possibility of the sons of today entertaining a prop- 
osition in business; they become more or less a subject, controlled by 
those who have 

The Chairman (interposing). They become employees instead of 
entrepreneurs, as the economics books have it? 

Mr. Craft. That is right, Mr. Chairman. 

The Chairman. Well, of course, that is the question. 

Mr. Craft. The question is to eliminate that ? 

The Chairman. I mean that is the question which the country has 
to decide, I suppose. 

Mr. Craft. That is true. 

The Chairman. If we assume the premise? 

Mr. Craft. Well, that is very true, too. Now should I go on with 
the next case? 

The Chairman. Well, we have all these cases liere. I don't know 
that it will add much. 

Mr. Craft. We do have some others that T would like to mention 
that have happened since filing the statement, if I may. 

The Chairman. We would be very glad to have the statement. 

Mr. Craft. Our salesman called on a gas station, split station, 
Herbert S. Miller, Allentown, on Nineteenth Street, sometime ago and 
Mr. Miller related to him that Mr. Stahlnecker, the representative of 
the Sun Oil Co., had called on him the day before and notified him 
that he must either go 100 percent Sun or they would pull their 
pumps. Well, Mr. Miller happened to have some American spirit 
still left and he said, "Well, take your pumps." 

Mr. Stahlnecker said, "Well, now just a second; don't be too 
hasty about this. Major companies are out to clean up the split- 
station situation. You might just as well make up your mind and go 
100 percent Sun as 100 percent something else. Now we will pull 


our pumps ; the argument is left between the two other Companies ; 
they make the same demands; one of the other companies will pull 
their pumps and you are left 100 percent, and what are you going 
to do about it? 

Now, we have other cases, too, where the same thing has happened. 

The Chairman. Do you mean that in this instance there were 
three sets of pumps on the station ? 

Mr. Craft. That is right, and, of course, he would enjoy an addi- 
tional half-cent a gallon by conceding to a lease proposition as 100 
percent. Now to my mind — maybe I am wrong on this — ^but giving 
to a 100- percent lease agency outlet a better price on his gas than they 
do to the adjoining station, operating as a split station would be 
contrary to the Robinson-Patman Act when gallonage is not con- 
sidered. For instance, if you are operating 100 percent Sun station 
on .he comer and I am on the next corner, operating a split station, 
I also have some of the same products. I may sell twice as much 
gasoline as you sell, but I pay a half-cent more for my gasoline than 
you pay. Now to my understanding, and to the interpretation that 
has been handed to me of the Robinson-Patman Act, that is contrary 
to that act, and that is one of the baits that is being used. 

Also cases where we contact a customer relative to quantity pur- 
chases. I contacted one person not so long ago and he had quite a 
supply of Capital Oil in 2-gallon oans, three to the case, which is put 
out by the Atlantic Refining Co., and I mentioned the fact that we 
could sell him our 2-gallon can and would be glad to do so. He said, 
"I don't think you can meet the price." I said, "What do you mean?" 
He said, "You go down to the Atlantic Refining Co.'s bulk plant in 
Scranton and buy a case and deduct 13 cents and that is the price 
that I pay." 

"Well, I said, "I don't think we can meet that. That is carload 
price." He said, "I am getting the carload price." "If you care to 
buy a carload, I will quote you a carload price." He said, "But I 
don't buy a carload." I said, "Do you mean you get the carload price 
but you don't buy the carload?" He said, "Well, the salesman comes 
along and he takes orders for so many cases here and so many cases 
there and so many cases at the other place, so on down the line, until 
he has enough orders to make up a carload, and he puts us in on the 
carload rate, and when that is delivered we either pay the driver or 
the salesman — we get no receipt, we get no bill; it is all invoiced to 
the fellow down at the end of the line, and when the fellow gets down 
that far it is credited to, the invoipe." 

We cannot meet any such competition or conditions as that; we 
are not attempting to, because I myself believe it is contrary to the 
laws which are today on the statute books and they say, "Well, 
why pay any attention to the Robinson-Patman Act ; the rest are not 
paying any attention to it, why should you?" I am labeled up there 
as an erratic, a fanatic, or anything they can call me, simply because 
we won't resort to the tactics we find in the field. Now, those 
tactics are going to continue and we hope to continue to operate in 
the same field, and we are going to be forcer" eventually to resort to 
those conditions, to those tactics, or else there is only one thing left, 
quit business. 


The Chairman. Well, of course, I think it is obvious to most ob- 
servers that for 50 years the legislative objective has been to maintain 
a small business against — or rather to defend the small business 
against the inroads of big business. That was the purpose of the 
Sherman antitrust law, to begin with, but in spite of good intentions 
and laws which may be good or bad, the steady tendency has gone 
the other way, and big business has become bigger and the discrep- 
ancy between the so-called giant economic unit and the free, inde- 
pendent enterprise has been getting greater all the time. 

Perhaps we are in a trend that we can't control. 

Mr. Crapt. Well, do you, Mr. Chairman, really b'elieve that it is a 
trend? • 

The Chairman. I am not expressing a belief. I am asking ques- 
tions; I am trying to find out. 

Mr. Craft. I am sorry. Evidently by 

The Chairman (interposing). You seem to be of a philosophical 
turn of mind ; therefore I was prompted to ask you the question. 

Mr. Craft. I am sorry; I misunderstood. I believe by observa- 
tion, practical experience, as limited as it may be, that it is uncontrol- 
lable so far and that is why I am concerned about this economic 
distress and disorder, not simply because I may be the only one 
ground between the millstones, but if we are going to concede to 
the possibility of legal technicalities — and, we would say, sharp 
practices — determining these things, then certainly they will be un- 
controllable, because with all legislation and with an attempt to con- 
trol these things, you still cannot stultify the minds of those who 
are operating the levers of this gigantic proposition. Now, if we 
are just going to legislate and then find that that legislation is ' 
going to be disrespected as it is, what alternative is there? We 
don't seem to get any action, because they just continue their opera- 
tions in defiance of the laws that are already enacted. 

Representative Williams. Then you don't believe it is necessary to 
enact any further legislation in the matter? 

Mr. Craft. I believe if we had enforcement, representative en- 
forcement — when I say that I don't wish to cast reflections and don't 
misunderstand me, gentlemen; I understand and am ready to ac- 
knowledge the fact that this is no small thing to contend with; 
there are many ramifications. When you start out on one track, 
the first thing you find is that you are into a situation where you 
have one thousand and one switches all thrown in front of you, 
and you are almost at a loss to know which to take. I realize that, 
but I do think if we would start and take into consideration the 
fundamentals of our economy and enforce the laws already on the 
statute books, I think we would get more results than we would to 
becloud the issue by enacting further legislation and after a while 
they become lost in the shuffle, and we are all confused on the issue. 

Representative Williams. You seem to think you have a number 
of cases where there has been violation of existing law. 
' Mr. Craft. Beg pardon ? 

Representative Williams. You seem to think that you know of a 
number of cases where there is a violation of existing law as you 
understand it. 

Mr. Craft. That is right. 


Representative Williams. Have you brought that to thei attention 
of the enforcement officers in that jurisdiction? 

Mr. Craft. In that jurisdiction? 

Representative Williams, Yes. 

Mr. Craft. I have communicated with the Department of Justice 
and the Federal Trade Commission on various counts. That is how 
this statement of mine happened to have been filed with this com- 
mittee, was because of my complaints to those two bodies, particu- 
larly to the Department of Justice. Pardon me. 

The Chairman. I didn't want to interrupt you, but I was about 
to remark that if you had an opportunity to sit with the Appro- 
priations Committee of either the Senate or the House while the 
various departments and agencies are seeking funds with which to 
operate, you would probably get a picture of why enforcement is not 
as easy as it sounds. 

When the Robinson-Patman Act was passed and certain responsi- 
bility was placed upon the Federal Trade Commission to enforce it, 
the Federal Trade Commission appeared before Congress and asked 
for an appropriation which in its opinion would be adequate to 
permit it to carry out its responsibilities under the act. It didn't 
get the appropriation that it sought, and as a result complaints piled 
up, letters piled up asking for information, and the Trade Commis- 
sion was physically unable to handle the job. I have been on the 
Appropriations Committee when the Department of Justice has ap- 
peared before it asking for money with which to enforce the laws 
now on the statute books, and there was much argument about it 
and about as to whether or not the Department of Justice should 
receive the money. We have had several outstanding illustrations 
of how difficult it is to enforce a law if the circumstances of life 
generally are running against the law. That was the experience, 
the outstanding experience, with respect to prohibition; the law 
against the manufacture and sale of intoxicating liquor was perfectly 
clear and everybody knew just what it meant; there were very few 
technicalities involved in that prohibition, and yet it was impossible 
to enforce it. 

Mr. Craft. That is true because it probably was against the wishes 
of the people, which after all, as I stated before in my opening 
address, the will of the people is a mighty power, or words to that 
effect. Pardon me just a second, but referring to the gentleman's 
question recently wanting to know if we had brought it to the atten* 
tion of, did you say, local authorities, may I ask ? 

Representative Williams. I said the authorities that had jurisdic- 
tion of the investigation, whatever it was. 

Mr. Craft. May I ask the question, being a Federal act, would 
there be anything outside of the Department of Justice or Federal 
Trade Commission, to whom we might direct our com^plaints? 

Representative Williams. I would think not; perhaps the district 
attorney in the jurisdiction of that violation, which of course is a 
branch of the legal department of the government. 

Mr. Craft. That would be our proper procedure, then, to take it 
up with the Federal authorities at Washington? 

Representative Williams. I wouldn't say particularly Washington, 
but I would say some of the local authorities, perhaps, that have 


jurisdiction of it, naturally upon the character of the violation that 
you have in mind. 

Mr. Craft. Would it not be timely, then, for the Department of 
Justice to so direct our complaints or advise us to* direct them to 
some local authority that might be in charge of .such things? 

Representative Williams. Do you know what they have done? 

Mr. Craft. No; truthfully, I do not. They have answered all 
complaints very courteously, but beyond that I couldn't say. We 
haven't had any action on those complaints against those complained 

Representative Williams. In accordance with your own statements 
you seem to think we already have legislation covering these viola- 
tions. If that is true, there is nothing else for us to do here so far 
as perfecting the legal machinery on that question. 

Mr. Craft. I believe that we do have legislation that will help, if 
we get the enforcement, but I believe that there will still be a way 
found around because of other concessions that are offered which 
legally, with the existing conditions, might be accepted, and unless 
we have further legislation to curb that, probably this will continue, 
and if we have legislation to curb that it may be necessary a few years 
later to again call together such a committee to further legislate. 

Representative Williams. As I understand your statements, you 
have a number of cases here which you consider violation of the law 
as it exists now, and that you have no further suggestions as to the 
manner in which that law should be amended to perfect it and pre- 
vent further violation of the law. 

Mr. Craft. No. 

The Chairman. You did suggest divorcement. 

Mr. Craft. Yes ; I do not wish to convey the thought that I believe 
that we have legislation at the present time that will wholly take 
care of the complaints that I have made ; no. 

Representative Williams. Then what is your suggestion? 

Mr. Craft. As I suggested to the chairman, that we have divorce- 
ment of marketing from other branches of the industry, and I do 
believe that there is another phase that should be considered, and that 
is that we should have true and adequate representation of small 
stockholders, and have labor on boards of directors of various com- 
panies in the United States, so that we can keep some of these things 
from creeping in because we have a governor upon the activities of 
the boards of directors that more or less certainly engage, or at least 
they release, information which brings about the engagement of these 

Representative Williams. Have you any suggestion as to how that 
can be accomplished when the boards of directors are elected by the 
stockholders of the corporations? 

Mr. Craft. Well, yes. Fortunately, or unfortunately, you might 
call it, I have been the owner of some of these gilt-edged bonds and 
securities they talk about, but, frankly, I can find that our wishes 
and opinions are never complied with, and when we write in to the 
secretary who has requested the proxies and state our views on the 
various things because of the fact that they do affect our economy, 
it just becomes a joke. I would like to say that I believe that I 
should be represented. I can go there; I can't even get the floor; 


I am talked down; I have no opportunity. I think that we should. 
You probably are aware as well as I am that the machinery is so set 
that we never get a hearing. The same with labor. I believe that 
in the early years of the '26 administration if we had legislation to 
that effect instead of these great mergers that were experienced we 
never would have had the '29 catastrophe, never would we have 
experienced the distorted labor conditions in this country that we 
have in the past several years. They all affect our business ; that is 
what I am talking about, I am not deviating from the small inde- 
pendent businessman. We are in the jaws of a vise, and there is 
plenty of power on the handle that is constantly being tightened up. 

The Chairman. Are there any of these cases to which you want to 
refer particularly? 

Mr. Craft. There are just one or two, if you don't mind. I would 
like to refer to case No. 2 for just a second. [Reading from "Exhibit 
No. 1222"] : 

Hess Auto Supply Company, 715 Main Street, Bethlehem, Pennsylvania, was 
a split station at the time we first sold him. Later on changed, as we have 
said here, to a hundred percent Sun. He did this because of the extra margin 
he received on his gasoline. 

In 1933 they purchased from us 2,425 gallons of motor oil. The Sun Oil 
Company took exception to that. In the early part of 1934, Mr. Hess was 
notified by the Sun Oil Cogipany representative that he must discontinue 
handling our products or lose his courtesy-card privileges, and Mr. Hess objected 
to the way that the Sun Oil Company approached him on the subject, and told 
them to remove the sign and to cancel the courtesy-card privilege, that he 
saw fit to continue to handle our products. He did and they removed the 
sign and canceled the courtesy-card privilege. 

That is stated merely to prove that there is intimidation connected 
with these contracts. [Reading further from "Exhibit No. 1222"] : 

No. 13. Geiger Service Station, Cedar Avenue and Elm Street, Scranton, 
Pennsylvania, 100 percent Socony-Vacuum. Socony- Vacuum leases the property 
from Mr. Robert Geiger's father on the rental basis of $80 a month and then 
releases it to Mr. Robert Geiger on the rental basis of $40 per month., Mr. 
Geiger handled our oil and displayed our sign until it mysteriously disappeared. 

Sometime later we placed another one of our signs on the curb line just 
inside the line of the adjoining property so that it would not be on the property 
leased by the' Vacuum Oil Company. Recently this sign disappeared. Mr. 
Geiger informs us that the Vacuum Oil Company salesmen removed the sign. 
They constantly object to his handling our oil. 

Now I might state further that they have discontinued entirely our 
product since ; the market has been lost entirely. 

Goin^ back to case No. 11, there is a particular case I would like 
to mention, 100-percent Atlantic. They had been buying our oil ai;^d 
displaying our sigh. The Atlantic Refining Co. objected to it, and 
they prevailed upon him to remove our signs and displays several 
times, and we prevailed upon him to move them back for display, 
because as soon as the sign was" moved back out of sight the sale 
of our oil decreased. When our sign was again moved to display 
our sale again increased, until later the Atlantic Refining Co. sales- 
man called on him and told him that .he must definitely discontinue 
the display of our sign, or that they would take action. 

They were paying him $50 a month rental for his place, and he 
was buying gasoline for a half a cent cheaper than the split station. 
He stated to the Atlantic Refining. Co. that he could not afford to dis- 
continue our product because of the fact, he said, "The gentleman in 


the car with me will use nothing but that ; if I do not have it, I lose 
his business." He said, "Well, discontinue the display of the sign, 
and if you have to handle it, give it only to those who demand it." 

Later on I met this salesman in the place and talked with him 
about the case. He said, "Well, wouldn't we be fools to go into 
these places and spend the money that we are spending and allow 
competitive products in there? What would be the objective? We 
have no object in doing such a thing. That is why we spend money." 
1 said, "In other words, you are telling me that these expenditures 
are primarily for the purpose of eliminating competition; it gives 
you absolute control?" 

He said, "That is right." I said, "Furthermore, we know that 
your primary product is gasoline; therefore you must reach out into 
the Mid-Continent and the Western fields for a crude that will pro- 
duce enough gasoline to supply the demand." He said, "That is 

"Therefore lubricating motor oir becomes secondary with you?" 

"That is right." 

"In other words, then, you are going to create control of the outlet 
whereby you can shove down the throats of the consuming public 
what you wish to, whether they want it or not, because there is no 
choice. If he drives into those stations he can't buy any other oil." 

He said, "That is right." 

The Chairman. The testimony here the other day by one of these 
four gentlemen,^ I think, was that the Quaker State Oil was handled 
by the Standard of Indiana in its territory at its stations. 

Mr. Crafi. That is correct. 

The Chairman. Do you know of any other such instance? 

Mr. Craft. No ; I do not. They act as the distributor in their re- 
spective territory the same as we do in the territory which we have 
with them for distribution. 

The Chairman. According to this last instance, the salesman didn't 
object so much to the actual sale of the Quaker State oil as to the 
display of the advertising. 

Mr. Craft. Yes; he did, because when he objected to the display 
of the advertising and the sign he knew that that inadvertently would 
aifect the sale, so he didn't just come out definitely and say, "Don't sell 
it," but he knew that he was taking a procedure which would affect 
the sale. 

The Chairman. Of course it would tend to confine the sales to 
those purchasers who caipe and asked for it particularly. 

Mr. Craft. That is true, and that is what he said, "Only sell it in 
cases where you absolutely have to." 

I would like to make one further reference. According to the rec- 
ord, or as I read it, Mr, Pew made a statement before this committee, 
if I may refer to it — may I ? 

The Chairman. Yes. 

Mr. Craft. "Natural economic laws are all at work in the oil in- 
dustry." Now this "natural economic laws" I think is quite a broad 
statement. Sometimes we become confused upon that natural law or 

^ See footnote 1, p. 8897, supra. 


natural right, and I would like to read if you don't mind from an 
article that is very short, if I am not taking too much of your time, 
by a columnist, Dorothy' Thompson, on this natural right. May I ? 

The Chairman. Yes. 

Mr. Craft. I, think possibly it might clarify the issue a little bit. 
[reading from Miss Thompson's article :] 

The evolution of a privilege into a natural right and into the demand for 
further privileges which will become further rights is a fascinating subject. 
We have scores of unfortunate examples in our history, and with a seemingly 
worthy zeal to develop the resources of this country with the greatest expedition 
we as a Government offer special privileges to capital in the form of protective 
tariffs, rights-of-way over land, monopolies of mineral resources, and what-not. 
These grants of special privileges then became for capitalists " 

Don't misunderstand me, I have nothing against the capitalists; I 
am a small one myself, but this is an illustration. 

a natural right, although a few far-sighted conservatives like John Quincy 
Adams, whom nobody at the time listened to because they said he was a re- 
actionary, foresaw that the grants would bring serious social maladjustments 
in the future. Reform governments who tried later to take back to the Gov- 
ernment that originally granted them some of these privileges or to modify 
them or to make the granting of them subject to some sort of social control, 
were met with the fury of men deprived of something which in their minds 
were no longer privilfeges granted, but rights deriving apparently from nature 
Itself, rights that were, it seemed, part of God's plan. 

Now why I bring that out is that I believe that when we refer to 
natural laws at work in this industry, it simmers down to this — 
rights, rights that have been obtained by those who are in the driver's 
seat, and that is the reason I wish to bring out that point. 

I also wish to make one statement. You asked if I had anything 
to sjiggest, I believe that divorcement of pipe lines, which is entirely 
out of my line, would have its effect on the marketing branch of the 
industry because they could not subsidize one 'department to take 
care of -the losses that might be effected in another to bring about 
distressed conditions whereby they bring the fellows under cojitrol 
that they wish to. 

The thing that I just can't undersand is that pipe lines enjoy the 
same eminent right of domain as the railroads do. If I have a 
farm of a thousand acres and the pipe line people wish to cross that 
farm, there is no way I oan stop them, they cross the farm. After 
the completion of this pipe line, if I as a farmer having a thousand 
gallons of milk to ship to the city market daily, contact that pipe- 
line management requesting them to handle" my milk to the city mar- 
kets, I am immediately told to take it to the railroads. The rail- 
roads must be equipped to .handle anything and everything whether 
it makes money for them or not. I believe that if the pipe lines 
are not divorced, whether they are or not, if they were brought under 
strict control of the Interstate Commerce Commission 9,nd had to 
equip themselves with facilities for handling any such commodity 
that may have to be shipped to the markets, it would help solve some 
of these problems that we are experiencing in the marketing end of 
the industry. I think it would help solve some of the other problems 
of the railroads becoming scrap heaps. Certainly, then, too, if I am 
a merchant on that corner over there, operating a store, and you are 


on this corner Iiere and you are benefiting by the free delivery, no 
freight charge, where I must pay it, I am sure to pass out of the 

Mr. Snyder. I think I have one question, Mr. Craft. Will you 
please refer to your case No. 24? ^ What year did the Tulsa Petro- 
leum Co. become a 100-percent distributor of the Standard Oil Co. 
of Pennsylvania? Do you recall? 

Mr. Craft. I couldn^t give you the exact date, but I believe it 
was 1937. 

Mr. Snyder. Prior to that time, do you know by what method 
they were obtaining their gasoline ? 

Mr. Craft. They were buying, as I understood it, on the open 

Mr. Snyder. They were in the position of jobbers in Standard's 

Mr. Craft. To this extent, they had the name Tulsa copyrighted 
and opened several stations of their own and then interested other 
operators in investing in the company and opening up stations to 
whom they acted as a supplier, and in that way, yes, they would be 
classed as a. jobber. 

Mr. Snyder. Do you have any knowledge as to why they went 
over to the 100-percent operation basis rather than continumg on 
the open tank car market? 

Mr. Craft. Why, I will relate to you what Mr. Philbin related 
to me. He said there were certain advantages in the display of the 
Standard sign because of the traveling public, they could benefit by 
sales at theii stations located on .the routes into the city by appealing 
to the traveling public who are acquainted with that name. 

Mr. Snyder. Did he tell you anything about the shrinkage of the 
margin of profit from 1935 to 1936? 

Mr. Craft. No ; frankly he djd not refer to that matter. 

Mr. Snyder. I have reference to the chart which Mr. Hadlick 
placed in evidence yesterday for Scranton, Pa.^ It shows that in 
1936 the jobber margin became a loss of a little over one-half 
cent. In 1937 it became a profit of about a third of a cent, and I 
was asking Mr. Craft to see if that was one of the reasons this semi- 
jobbing outfit went out of the independent business and became a 
100-percent distributor with a guaranteed margin. 

Mr. Craft. May I further state relative to that that he did state, 
"As you know, Mr. Craft, it is harder to make a profit today than it 
has ever been in this business." It was during the price wars that 
were prevalent at that time, and during that time the tank-car 
margin was not as great as it had been prior to the gasoline wars. 

Mr. Snyder. Prior to the gasoline wars it had been as high as 2% 
cents at times, apparently, from this chart. 

Mr. Cra"ft. That is right. 

Mr. Snyder. Are there any jobbers in the Scranton market today ? 

Mr. Craft. Tulsa continues to handle their Tulsa brand. 

Mr. Snyder. In conjunction with the Standard of Pennsylvania 
brand ? 

Mr. Crafi. That is right. 

1 Appendix, p. '9174. 

» "Exhibit No. 1213," appendix, facing p. 9166. 


Mr. Snyder. Are there any independent jobbers operating in the 
area besides the Tulsa? 

Mr. Craft. Do you mean marketing an independent gasoline or 
a major gasoline? 

Mr. Snyder. Selling either an independent brand or a major 
company brand to filling stations. 

Mr. Craft. Yes; there are. 

Mr. Snyder. Are any of them selling their own brand exclusively? 

Mr. Craft. Not that I know of, not a one, not to my knowledge. 

Mr. Snyder. Then all of them do sell, to some extent, major com- . 
pany brands. 

Mr. Craft. That is right. 

The Chairman. Are there any questions? 

Mr. Craft, we are very much indebted to you. 
: Mr. Craft. Thank you, gentlemen. 

(The witness, Mr. Craft, was excused.) 

The Chairman. The next witness will be Mr. Culver. 

i)o you solemnly swear that the testimony you are about to give 
in this proceeding shall be the truth, the- whole truth and nothing 
but the truth, so help you God ? 

Mr. Culver. I do. 


The Chairman. Give your name to the r^orter. 

Mr. Culver. Irving B. Culver. 

The Chairman. What is your position ? 

Mr. Culver. Sales manager of the National Oil &' Supply Co. 

The Chairman. What is the National Oil & Supply Co. ? 

Mr. Culver. A corporation in the State of New Jersey. 
. T|;ie Chairman. A State of New Jersey corporation ? 

]V^. Culver. Yes, sir ; "incorporated in 1901. 

The Chairman. How many stockholders? 

Mr. Culver. There are three stockholders who belong to the fam- 
ily, Arthur Phillips and his family. 

The Chairman. What is the capital stock?- 

Mr. Culver. In 1901 it was $60,000. I don't believe that has been 

The Chairman. Is it a subsidiary of any corporation? 

Mr. Culver. No, sir. 

The Chairman. Does it have any subsidiaries? 

Mr. Culver. It has not. 

The Chairman. How long have you been sales manager? 

Mr. Culver. Ten years. 

Gentlemen, I assure you I will be brief and stick to the facts per- 
taining to our busin<?ss. 

difficulties or an independent in marketing products. 

Mr. Culver. We distribute Quaker State motor oil and greases in 
21 counties in New Jersey and all of Metropolitan New York, em- 
ploying on an average oi' 100 employees. Our statement filed with 
your committee ^ outlines in detail the difficulties of our company, an 

^Admitted infra as "Exhibit No. 1223. 
124491 — 40— pt. 16, sec. 3 6 


independent distributor, in marketing our products to gasoline sta- 
tions, garages, car dealers on the highways, and in the towns and 
cities. During the year of 1938 we lost to 13 major oil companies 172 
accounts who leased and released agreements whereby the dealer was 
given to understand that he would not be permitted to sell or display 
any merchandise other than that of the major company with whom 
he made the agreement. 

In our statement we have listed these accounts by name and shown 
the names of the companies to which we have lost them. 

One of the existing practices of the major oil companies is the 
refusal to honor credit cards of a dealer who displays our products 
or advertising pertaining to these products. On one highway alone 
between Trenton and New York City, No. 1 Highway, in 1936 we had 
51 Quaker State displays, signs, advertising our product to the mo- 
toring public. Today we have 5. In many instances after a sales- 
man has opened an account and the merchandising signs are dis- 
played, the dealer is called upon by the salesmen of the major oil 
company and told that unless he discontinues the display of Quaker 
State products he will lose his credit card business, and in most cases 
the customer then notifies us to pick up our merchandise. 

Another method employed to discourage the sale of our material 
is to promise a dealer new equipment, repairing, painting, providing 
he discontinues the display and sale of our products. 

Many of our accounts have contracts — that is not a lease and re- 
lease — contracts where our account contracts to purchase gasoline 
ai)d oil from the major oil companies; that has nothing to do with 
the lease and release. Those 172 accounts that we lost through lease 
and release are definitely lost. We call on them, naturally; we also 
sell alcohol during the winter season, but it is impossible to sell that 
type of account our merchandise. These accounts I am talking 
about now are contract accounts. Many of our accounts who have 
contracted with the major oil companies are obliged to botleg our oil 
and keep it hidden in closets, back rooms. In these cases our sales- 
men make a notation on the order to stop the delivery truck a block 
away from the customer's place of business and make the delivery 
only if no representative of the major oil company is present. Un- 
der those conditions and without proper display of our material and 
advertising, our sales have been reduced to about 10 percent of what 
they would normally be were they freely displayed and advertised. 
Where our signs and material are displayed freely, we can get our 
normal amount of business, but where we have to remove all mer- 
chandise and it is hidden away in closets, signs are hidden away or 
picked up, our sales are only 10 percent of what they should be at 
that particular station or stations. 

We have in the past enjoyed an excellent business with car dealers. 
The major companies in attempting tt) secure this business from us 
do not try to sell their products on the merit of the , product, but 
offer all kinds of inducements such as furnishing lists, ' air com- 
pressors and modern lubrication equipment, the cost of which runs 
into hundreds of dollars. They sign the dealer up for a period of 
years. He pays for the equipment from rebates or on a deprecia- 
tion basis. On this latter basis the Tidewater Oil Co. depreciated a 
$500 expenditure at the rate of $11 per month, with a cancelation 
clause. This gives them the advantage of having this biisiness 100 


percent for a period of close to 4 years. By reason of restraints im- 
posed by the major companies normal channels of trade are being 
closed to us and the sales of our product, which has national con- 
sumer public acceptance, have been so seriously curtailed that -they 
have reached a point where our very existence is threatened. 

That is, in brief, gentlemen, all I have to say. 

Representative Williams. In these leases and releases that you 
speak of, are there any provisions where it is relet to the owner, that 
he shall handle exclusively the products of the company? 

Mr. Culver. No, sir; they are very cleverly drawn up but he is 
instructed by the company's salesman or representative, in fact he 
knows he can't handle it; it is common knowledge and he will not 
handle it. 

Representative Williams. For how long are those leases made? 

Mr. Culver. Usually for 1 year, sometimes 3, depending on the 
amount of construction or repair work or what have we?. 

Representative Williams. That would leave them in a position to 
cancel that lease, I assume, on very short notice. 

Mr. Culver. I believe it is 5 days' notice that they can cancel that 
lease. In some cases I have known these leases and re-leases to change 
hands five times in 1 year. 

Representative Williams. You spoke of the contracts. 

Mr. Culver. Yes, sir; in other words, an independent has a con- 
tract to purchase oil and gasoline, a gasoline and oil contract; he 
owns the station, but in order for him to enjoy the benefits of the 
credit-card and the courtesy-card privileges, he is not allowed, or he 
is told he is not allowed, to handle any other products. 

Representative Williams. Is there an exclusive- clause in that 
contract ? 

Mr. Culver. There is not. 
. Representative Williams. But that is the understanding orally at 
the ^ime it is made ? 

Mr. Culver. That is correct. We have hundreds of such cases. I 
have them here with me. I am not going to take the committee's 
time to read them. I know it is a repetition. I have hundreds and 
hundreds of them, why the dealer cannot handle their products.^ 

Representative Williams. Is that the general practice? 

Mr. Culver. That is the general practice in the major oil compa- 
nies, to squeeze the independents selling to their stations. 

Representative Williams. Do you think as a result of that the 
independent jobber and dealer are gradually disappearing? 

Mr. Culver. There is no doubt about that. Our business normally 
in 1936 was a little over a million and a quarter dollars, that is gross 
business, and in 1938 our oil sales were off 30 percent. 

Mr. AviLDSEN. Mr. Culver, tell ug about the dealers to whom you' 
do sell this Quaker State oil. Do they also sell gasoline? 

Mr. Culver. Yes; with the exception of car dealers. I don't quite 
get your question. s 

Mr. AviLDSEN. I assume you have lost a lot of business but you 
have retained some of it. 

Mr. Culver. Here is what we do. On the contract agreement to 
buy gas and oil we retain it, we sell those accounts, yes; but where 
they do not display the oil and advertising material, our business has " 
dropped at least 90 percent at those stations. 


. Mr. AviLDSEN. Now, do you mean to say none of your dealers dis- 
play signs? 
Mr. CtiLVER. YeSj sir. 

Mr, AviLDSEN. How about the man that does display a sign? 
Mr. CuiiVER. He has a normal run of business and our business 
at his station goes along in a normal way, and in a good year we 
have a pick-up, or a bad year, a loss. 

Mr, AviLDSEN. Now, what I want to know is where does he buy his 
gasoline ? What does he do that permits him to put up a sign 
advertising Quaker State? 
Mr. CuLVEK. He has a credit card, a credit sign, where he handles 

our product in defiance 

Mr, Alvedsen (interposing). Does he get the same price on gaso- 

Mr. Culver. He gets the same price, except he does not get the 
privilege of displaying the credit card. 

JVIr. AviLDSEN. Your problem has been to convince the dealer that 
he is better oflf handling Quaker State and advertising it and giving 
up the credit card ? 

Mr. Culver. Quite so, and we have hundreds of them that do 

Mr. AviLDSEN. Do those men actually make more money than the 
dealers who don't display Quaker State? 

Mr. Culver. Well, that all depends on location; that all depends 
on location. In cities^ no. The major oil companies have done a 
wonderful job in selling the consumer to use the credit card. I 
wouldn't be a bit surprised but what you have received a letter from 
some major oil company asking you to use their credit-card privi- 
leges. You sure would if you were taking a trip or had written 
to them at any time, for a road map or such information, and when 
you are accustomed to using a credit card it is very convenient to 
pull into a station and hand your credit card in. 

Mr. AviLDSEN. Then the credit card is the chief factor? 

Mr. Culver. It is in our case. 

Mr. AviLDSEff. In taking this business away? 

Mr. Culver. It is in our case. 

The Chairman. What inducements have you offered to dealers? 

Mr. Culver. We follow one straight course. We have our prod- 
ucts to sell at a certain price, and wp haven't — we don't feel we are 
financially able, if we could, and we don't feel it is good business. 

The Chairman. What has been your sales practice? 

Mr. Culver. In reference to; dealers? You see, we handle no 
gasoline, Mr. Chairman. 

The Chairman. That is what I understand; you are selling the 
Quaker State oil. Now, how have you gone about it during all of 
these years, since 1922? 

Mr. Culver. Well, we sell our merchandise at a published price, 
the same price to everbody. We have no two prices in our set-up. 

The Chairman. Well, now, if you were coming to me, I was oper- 
ating a retail station, what argument would you use with me to pre- 
vail upon me to sell Quaker State oil ? 

Mr. Culver. We would probably talk to you about consumer con- 
sumption or consumer acceptance, public acceptance, the amount of 


advertising that Quaker State do to keep the Quaker State brand 
before the public, and we would show you our' advertising kit, for 
instance, the letters we can send to your customers which are sent 
out by the refinery, purely from an advertising point of view. It 
is the only possible way I could get your business. 
The Chairman. That would be one factor. Anything else? 
Mr. Culver. Nothing else whatsoever. 
The Chairman. Quality? 
Mr. Culver. Well, quality. 

The Chairman. That is included in the advertising? 
Mr. Culver. Yes. 

The Chairman. Price, no inducement on price? 
Mr. Culver. Absolutely none. 

The Chairman. How does your price compare with prices charged 
for competing products? 

Mr, Culver. Well, our price — we call it a premium oil, and it is 
higher in price than any other oil on the American market. 

The Chairman. So your whole task is to sell a superior product at 
a fixed price on the ground of consumer demand? 

Mr. Culver. That is correct, and we are very successful in doing 
it where the stations are not close. 
The Chairman. And you have never offered any concessions? 
Mr. Culver. No, sir; we do not. 

The Chairman. Now you are an agent of th^ Quaker State Co.? 
Mr. Culver. We are the distributor for them. 
The Chairman. Do you distribute on a commission? 
Mr. Culver. I wouldn't say distributor, or jobber, you may call it. 
The Chairman. You distribute on a commission or margin? 
Mr. Culver. We employ — we go at it this way — we employ sales- 
men, we will say, in New York. Altogether we employ 29 sales- 
men who work on a guaranteed drawing account against commission. 
The Chairman. Well, that is the salesman's commission? 
Mr. Culver. That is right. 

The Chairman. How do you operate with the Quaker State? 
Mr. Culver. We purchase direct. In other words, they send it 
to us at their price, and it is not a consigned or any such arrangement. 
The Chairman. Do you have a margin? 
Mr. Culver. I don't quite understand. 

The Chairman. Do you have a margin fixed by contract '{ 
Mr. Culver. That is right ; yes, sir. 
Representative Williams. Let me see that I understand that. 

Margin between the price that you pay and the price 

Mr. Culver (interposing). We wholesale it at. 
Representative Williams. Well, that is fixed, then, by the Quaker 
Mr. Culver. That is correct. 

Representative Williams. Who fixed the retail price of it? 
Mr. Culver. They have a published price which I have here. That 
is published and the only difference in the price anywhere in the 
United States would be freight rates. 

Representative Williams. Well, they fix it, then, the Quaker Co. 
fixes the wholesale price or the jobber's price? Your price to the 


Mr. Culver. That is correct, sir. 

Representative Williams. And the retailers' price to the con- 
sumer ? 

Mr. Culver. They suggest that price, and v^^e have never gone away 
from it. 

Representative Willl\ms. Well, I say there are three stages in the 
price procedure that are all fixed by them? 

Mr. Culver. That is correct. 

Mr. O'CoNNELL. You say they suggest the price in your contract 
with the Quaker State oil. Is the resale price contained 

Mr. Culver. No ; these are printed up for the different dealers, and 
that is the suggested price. 

Mr. O'CoNNELL. But it has no sanction of contract ; I mean by that 
a retailer could sell at another price than the first price? 

Mr. Culver. We ask our retailers to sell for 35 cents a quart, and 
in our national advertising it is mentioned the same, 35 cents per 
quart in all of our national advertising. That is the Quaker State 
national advertising 

The Chairman. When you said that yours was a superior oil, and 
that it was more costly than the others, were yoi^ referring to the cost 
to the consumer or the cost to the retailer? 

Mr. Culver. I should refer to the cost to the manufacturer. 

The Chairman. Well, what about the cost to the retailer? 

Mr. Culver. His margin of profit on the 35-cent retail price i^ 
possibly greater tlian the oil he is selling of a major oil company. 

The Chairman. So that the retailer would make more profit on the 
Quaker State. 

Mr. Culver. That is right. 

The Chairman. Than he would on the competing product which 
he is required to take under these devices which the other witnesses 
have described? 

Mr. Culver. Yes, sir. 

Mr. Snyder. Mr. Culver, in metropolitan New York and in 21 
counties in New Jersey, in which you distribute Quaker State oils, 
does any major oil company distribute there for you ? 

Mr. Culver. No, sir, 

Mr. Snyder. Now, in regard to the chairman's questions as to how 
you go about contacting prospective customers, suppose your repre- 
sentative approaches the manager of a split service station, selling 
three brands of gasoline; he has never sold Quaker State oil before. 
Do you offer him a contract to distribute Quaker State ? 

Mr. Culver. No, sir. 

Mr. Snyder. None at all ? 

Mr. Culver. No sir ; we do not. 

Mr. Snyder. Dp you have any contract distributors? 

Mr. Culver. No, sir ; we have no distributors. 

Mr. Snyder. It is a pure sale transaction, paid for at the time 
he buys it? 

Mr. Culver. That depends naturally on his credit. 

Mr. Snyder. On his credit? Do you have any dealers who dis- 
tribute Quaker State motor oils on consignment? 

Mr. Culver. No, sir ; we distribute it all ourselves. 

Mr. Snyder. I raise the question for I thought from, your early 
testimony that there might have been a possibility here that you 


were by inference informing the committee that this leasing of the 
stations brought about a breach of contract between your company 
and your distributor, but apparently that isn't true ? 

Mr. Culver. No; we have no distributor. There is one thing I 
may add to that, when you say a divided station. In metropolitan 
New York and in our New Jersey territory I honestly couldn't tell 
you one divided station. I don't laiow of one. 

Mr. Snyder. The split station has gone out there in that area? 

Mr. Culver. Absolutely in that area there is no split station. 

Representative Williams. Right there, while you are on that, that 
term has been used here a good deal. I am not sure that it is always 
used in the same manner. What do you mean by a split station? 

Mr. Culver. A split stati^m is where a dealer will have one pump 
for Standard oil and one of Tydol. 

Representative Williams. That refers to gasoline only? 

Mr. Culver. That is correct. 

Representative Williams. It doesn't necessarily mean that a uni- 
fied station, I will call it, means a station which sells the gasoline 
and the lubricant products of the same company ? 

Mr. Culver. They usually — they would sell the oil of both com- 
panies where they are a split station. They have what they call a 
minimum contract. 

Representative Williams. Well, when we are talking about the 
integrated companies, the major companies reqjiiring the handling 
of their product exclusively ; now are we talking about simply their 
gasoline product, or their gasoline and lubricants both ? 

Mr. Culver. We are talking about both their lubricating oils. 

Representative Williams. Both ? 

Mr. Culver. Yes, sir. 

Representative Williams. In other words, with them a station 
must handle their products? 

Mr. Culver. That is right. 

Representative Williams. Gas and lubricants exclusively. 

Mr. Culver. Up until a few years ago there was any number of 
divided stations. Well, those stations were very easy for us to sell 
and when one of the major oil companies took them over why it was 
impossible then for us to sell those stations. 

Representative Williams. What I am trying to get at is this: 
We have one station selling gas — one brand of gasoline exclusively? 

Mr. Culver. Yes, sir. 

Representative Williams. And selling the Quaker State lubri- 
cants, for instance; selling, we will say, the Sun gasoline and your 
lubricant. Now is that a divided station ? 

Mr. Culver. No ; that isn't a divided station where they are selling 
one gasoline and our lubricant. 

Representative Williams. It isn't? 

Mr. Culver No: we wouldn't call that a divided station. 

Representative Williams. As long as they are selling exclusively 
one gasoline, that is not a divided station? 

Mr. Culver. That is correct. 

Representative Williams. So that the dividing point is on the ques- 
tion of gasoline? 

Mr. Culver. That is cprreet. 

Representative Williams. 'And not on the question pf lubricants? 


Mr. Culver. Where the station is not divided it is impossible for 
that man to' do business unless he handles the major oil companies' 
oil. He might handle our oil, but he has to handle their oil. 

Representative Williams. Well, now it seems to me like that, to 
my mind, befuddles it again. He may handle two brands of 
lubricants ? 

Mr. Culver. That is right. 

Representative Williams. And one brand of gasoline ? 

Mr. Culver. That is correct. 

Representative Williams. And still not be a split station ? 

Mr. Culver. That is correct, 

Mr. Snyder. Mr. Culver, is it fair to say that a unit of sale by the 
major oil companies to a service station operator includes both 
gasoline and motor oils of that company? 

Mr, Culver. Yes, sir. 

Mr, Snyder. Now, do you have any customers that handle only one 
major brand of gasoline and one major brand of lubricants and sells 
Quaker State? 

Mr. Culver. Yes ; we have any number of them. 

Mr, Snyder. Are they contracted stations? 

Mr. Culver. They are contracted stations wit^ no courtesy sign or 
courtesy-card privileges. 

Mr. Snyder, Are they lessee stations? 

Mr. Culver. No ; tjiey are not. 

Mr. Snyder. They are independent businessmen who own their 
property and decided to sell major-company gasoline and motor oils, 
and your motor oils, too? 

Mr, Culver. They have to have a contract in order to sell it. 

The Chairman. Are there any other questions? Mr. Culver, we 
are very much indebted to you ; unless you have something else to say 
you will be excused. 

Mr. Culver. Thank you. 

The Chairman. The statement will be made part of the record. 
Likewise the statement of Mr. Craft.^ 

(Mr. Culver's prepared statement was marked "Exhibit No. 1223" 
and appears in the appendix on p, 9176.) 

The Chairman. The committee will recess until 2 : 15, when Mr. 
Scott will take the stand. 

(Whereupon at 12 o'clock the committee recessed until 2: 15 p. m.) 


The hearing was resumed at 2 :35 p. m. upon the expiration of the 
recess, Representative Williams presiding. 

Acting Chairman Williams. The committee will come to order, 
please. I believe the next witness is Mr. Scott. Is he present ? 

Will you be sworn, Mr. Scott? Do you solemnly swear the testi- 
mony you are about to give in the matter now pending will be the 
truth, the whole truth, and nothing but the truth, so help you God? 

Mr. Scott. I do. 

1 PrevlouBly admitted and marker "Exhibit No. 1222." 



Acting Chairman Williams. Be seated, and give your name, posi- 
tion, background, and experience to the committee. 

Mr. Scott. My name is Lester S. Scott. I have been engaged in 
the marketing of petroleum products here in the District of Columbia 
for the past 17 years. I am still engaged in the petroleum industry, 
and I have prepared a statement for the committee which outlines 
quite fully my experience and my opinion with regard to the market- 
ing situation so far as it affects the independent marketer here in the 
District of Columbia and nearby Maryland and Virginia. 



Mr. ScoTT. I don't know that there is much that I can add to the 
over-all picture, but I have outlined in some detail some of the prac- 
tices that have developed over a period of years as it affects the in- 
dependent marketer. I have included with my statement a recent 
survey which was made by the Washington Post which gives the sale 
of gasoline by companies during the past 5 year^. It also includes 
a break-down of the retail outlets and how they are controlled, and by 
whom they are operated. I think that survey probably gives about 
as clear a picture of the marketing situation here in the District as 
can be obtained. 

I don't know what I can add to what I have included in the state- 
ment which I have tried to set forth just as fully as I can, from my 
own individual standpoint. I don't represent any group. I repre- 
sent myself and the company I am associated with here, but I do feel 
that I fairly represent, and represent fairly, a large number of inde- 
pendent wholesalers and dealers throughout the country in the situa- 
tion in which we find ourselves. • 

Acting Chairman Williams. What company are you connected 

Mr. ScoTT. I am the manager of the Loughborough Oil Co. It is an 
independent, locally owned company. 

We are engaged principally m the marketing of fuel oil for do- 
mestic consumption in homes and the marketing of lubricating oils 
and greases through independent dealers. 

Acting Chairman Williams. Dp you handle gasoline? 

Mr. Scott. We do not handle gasoline at all. We did handle gaso- 
line 7 or 8 years ago, but we found that it was impossible to continue 
in that operation on a profitable basis. 

Acting Chairman Williams. Where do you get your supplies? 

Mr. Scott. We get our supply of fuel oil from Baltimore. All of 
our fuel oil is shipped in by tank car from Baltimore terminals. 

Acting Chairman Williams. I had more reference to the company 
with which you deal. 

Mr. Scott. We deal with several companies. We buy a 4arge 
amount of fuel oil from the Standard Oil Co. We buy some from the 


Gulf Refining Co. We have bought some from Shell, and we have 
bought some from James B. Berry & Sons. 

Acting Chairman Williams. What difficulties have you had in 
marketing enterprises and activities? 

Mr. Scott. The main difficulty that we have experienced has been 
in the marketing of motgr lubricants, motor oils, and the difficulty 
that we found is that our potential outlets for lubricating oils are 
being gradually dried up. 

Acting Chairman Williams. What is your explanation for that? 

Mr. Scott. Well, the explanation is that the desirable retail out- 
lets are being gradually absorbed in one manner or another by the 
major operating companies, which excludes the marketing of the 
product that we are wholesaling, and that is very forcibly borne out 
by this survey made by the Washington Post. 

Acting Chairman Williams. Does there seem to be any general 
plan adopted by those companies to get possession of these outlets? 

Mr. Scott. I wouldn't say so. There seems to be devious ways 
that they use in obtaining control of a retail outlet. As far as I 
have been able to observe, they haven't any set plan for it, but they 
do, nevertheless, gradually get control of the desirable retail outlets. 

Acting Chairman Williams. What are some of their methods? 

Mr. Scott. They have one method that is very destructive so far 
as our wholesale business is concerned, and that is the lease and 
agency arrangement, whereby they will take a desirable retail outlet 
and enter into a lease arrangement with the owner or the lessee, 
whereby the owner or the lessee will agree to handle their products 
exclusively in return for some valuable consideration, either an addi- 
tional margin of profit, improvement to the property, or in some 
cases in outright loans in cash. 

Mr. O'CoNNELL. Could you summarize for us very briefly the con 
elusions of that survey to which you just referred? 

Mr. Scott. Yes; I think I have it summarized quite briefly in 
this statement, which I will be glad to read. 

Mr. O'CoNNELL. Where is it in your statement? 

Mr. Scott. It is on the first page. I want to point out certain 
things shown in the survey of the Washington Post as follows. 

Acting Chairman Williams. What you are reading from is your 
prepared statement, I take it, which has been submitted here and 
which is now being offered for the record. 

Mr. Scott. That is right. 

Acting Chairman Williams. It may be accepted for the record. 

(The statement referred to was marked "Exhibit No. 1224," and 
is included in the appendix on p. 9180.) 

Mr. Scott. Do you wish me to read this ? 

Acting Chairman Williams. I think not. 

Mr. Scott. I have prepared a summary of the Washington survey 
in the statement in which I point out the number of retail outlets 
that are available to an independent marketer like ourselves, the 
number of retail outlets that are controlled by the major companies, 
which gives the picture, so far as the independent marketer is con- 
cerned, here in the District of Columbia. 

" Mr. O'CoNNELL. That indicates the situation as it exists today. 
Have you any other material which would indicate what the trend is, 
as to whether there are more or less today than there were ? 


Mr. Scott. I would say that based on this survey made in Decem- 
ber of the past year by the Washington Post the trend is toward a 
more definite control of the remaining retail outlets, because some 
of the retail outlets th-^t were open as of Dcember have since been 

So that the situation is worse today than it was in December so far 
as the independent marketer is concerned. 

Mr. O'CoNNELL. You don't know whether it was worse in Decem- 
ber of '38 than it was in December 2 or 3 years previous to that? 

Mr. Scott. Much worse as of December 1938. I mean there has 
been a grr.dual process of elimination. 

Mr. O'CoNNELL. I understand that; that is a conclusion, though, 
and I wondered if there is no statistical survey which would give us 
a comparison. 

Mr. Scott. I pointed out in the statement that there is no previous 
.survey made previous to 1938 which would give such a comparison; 
if such a survey were available I am sure it would be rather startling 
in its comparison. 

Mr. Shaughnesst. Mr. Scott, you say there is no previous survey. 
At the time when you were chairman of the code committee, back in 
1934 and '35, there were more independent stations, to your knowl- 
edge, than there are reflected in this survey? 

Mr. Scott. A great many more ; yes, sir. 

Mr. Shaughnesst. A great many more. That was because of your 
knowledge, because of your experience with the industry at that 
time ? 

Mr. Scott. Yes. 

Mr. Shaughnesst. Now, the price of gasoline in Washington has 
been pretty stable, hasn't it? We haven't had any price wars here 
of any consequence in the last few years ? 

Mr. Scott. Well, so far as I know. I haven't been in close touch 
with the gasoline market for the past 7 or 8 years because I haven't 
been selling gasoline. I just know in a very general way, and so 
far as I know there hasn't been 'any serious price situation. There 
has been during the past year or so, I believe, quite a good deal of 
price cutting on third-grade gasoline. I think the branded products 
have been fairly well maintained. 

Mr. Shaughnesst. Do you know anything about the possibility of 
increase in service-station discounts under "canopy," secret rebates? 

Mr. Scott. Just from talking to men who are in the retailing of 
gasoline; they do complain a good deal of "under canopy" discounts 
and I get that information through our contacts with the retail 
dealers to whom we sell lubricating oils. They do complain of that 
quite bitterly, on "under canopy" discounts. 

Mr. Shaughnesst. You sell lubes to local dealers? 

Mr. Scott. We do ; yes. 

Mr. Shaughnesst. in considerable quantity? Are those branded; 
yours are unbranded? 

Mr. Scott. We sell only branded lubricating oils and in a fair 
quantity. However, we have experienced the difficulty of being able 
to maintain our volume of business by reason of the diminishing 
retail outlets for the product. 

Mr. Shaughnesst. Are those lubes branded by the major com- 
panies or are they Quaker State, Kendall, or 


Mr. Scott. Well, we handle the branded product of the Quaker 
State Oil Refining Co., exclusively. 

Mr. Shaughnessy. I wonder if you are sufficiently familiar with 
the retail market to tell me whether the so-called Iowa plan of leas- 
ing out service stations here has had any substantial effect on the 
dealers' margin? 

Mr. SooTT. Well, I don't know as I quite understand your question. 

Mr. Shaughnessy. Well, we have been told through these hear- 
ings that raajor companies have leased out their service stations to 
dealers 5 that the old practice of company-owned stations or strict- 
lease agencies, as we formerly understood it, have been eliminated, 
and that today major companies normally lease the service-station 
property to the independent operator, who in substance fixes his 
own margin, but there is no real retail price of the major company 
in the way that there used to be. 

Do you know if that situation is the case? 

Mr, Scott. Well, it is my opinion that the leasing by the major 
companies of their stations to independent operators has had the 
effect of upsetting the market to some extent so far as price is con- 
cerned, because there seems to be quite a varied method of operating. 
Probably in many cases the dealer in his effort to try to make a 
living out a station has given "under canopy" discounts in order to 
build up a volume. I have talked to a number of dealers who are 
operating such stations and that seems to be their theory. 

Mr. Shaughnessy. That still doesn't quite answer my question. 
You say there are a number of dealers. Would you be of the opinion 
that that is the widespread practice? What I am thinking of is 
this : Normally, at least, a lower retail price would eventually cut the- 
dealer's margin substantially. We haven't had that situation here. 
We haven't seen a clear-cut reduction in the dealer's margin, and 
without knowing what exact volume, how substantial the amount of 
secret cutting is, we wouldn't know just how adversely the independ- 
ent operator was affected by the Iowa plan. You wouldn't have any 
exact information as to the exact volume of the secret rebates, how 
many stations are indulging in it? 

Mr. Scott. No ; I wouldirt be able to answer that question because 
I don't come in close enough contact with the gasoline end of the 

Mr. Chantland. Do you refer to the summary on page 10 ? ^ 

Mr. Scott. Yes. 

Mr. Chantland. Showing that the independents have 226 ^umps 
out of 2,854 in the District. Is that right? 

Mr. Scott. Two hundred and twenty-six. 

Mr. Chantland. Pumps, out of 2,854 total for the District? 
' Mr. Scott. That is what the survey shows ; yes. 

Mr. Chantland. And of these, being in 70 stations, of them 43 
were split, were they? 

Mr. Scott. That's right. 

Mr. Chantland. Meaining what — "split" stations? 

Mr. Scott. That means where they handle the product of more 
than one major company. 

'Appendix, p. 9184 et seq. 


Mr. O'CoNNELL. Can you tell us anything about the volume of 
sales of. lubricating oils of your company ? You have indicated there 
has been a trend in the way of reduction of the independent outlets 
through which you could sell or market your products. What has 
been the volume of your sales, in trends and profits ? 

Mr. ScoiT. Well, our volume of sales this year is about 10 percent 
less than they were last year and in 1938 they were about 15 percent 
less than they were in '37, and in my opinion that reduction has been 
due almost solely to the reduction in the number of potential outlets 
for our products. 

Mr. Shaughnessy. One more question, Mr. Scott: Do you know 
whether the amount of gasoline coming into the District from non- 
major-company sources has decreased in recent years? I know we 
used to have a fair amount of Snappy. Is that a major-company 
supply ? 

Mr. Scott. No; that is an independent operated. 

Mr. Shaughnessy. And General — is that a major company? 

Mr. Scott. General is, so far as I know, an independent company. 
I have never been able to follow their original source, but they appar- 
ently operate as an independent company. 

Mr. Shaughnessy. Spur is an independent company too, isn't it? 

Mr. Scott. I understand that Spur is independently operated. 

Mr. Shaughnessy. I was just thinking that there doesn't seem to 
be any decrease in this table for those companies. I was wondering 
if you could explain that — I mean, no decrease in the amount of 
gallonage sold per year. 

Mr. Scott. Well, I can't explain it except that there has been a 
fairly steady increase in the total volume of business, over-all business. 

Mr. Shaughnessy. Do you know whether, as a matter of fact, they 
openly sell under the market? They sell third-grade gasoline. 

Mr. Scott. They all, or at least most of them, sell at less' than 
the branded. 

Mr. Shaughnessy. So then there was what we might call a tolera- 
tion in price differential here in the District, in their not cutting the 
major gasoline price down to the price of the independents. 

Mr. Scott. I think in a number of cases the major company leased 
stations ha^ inet the price of these independent third-grade opera- 
tors ; at leasu the signs displayed at the station would indicate it. 

Mr. Shaughnessy. Wouldnx you say that was the case of an inde- 
pendent distributor distributing major-company gas, meeting fi,n in- 
dependent distributing independent gasoline? 

Mr. Scott. I don't think it would be restricted to one. 

Mr. Shaughnessy. But it is done. 

Mr. Scott. It is done in certain stations. 

Mr. Shaughnessy. Nevertheless the independents jhave been able 
to maintain theit gallonage. 

Mr. Scott. I don't know whether they have been able to maintain 
*heir gallons. 

Mr. Shaughnessy. These figures indicate it. 

Mr. Scott. I think where they have met the third-grade independ- 
ent's price it lias been where they have been in close competitive 
proximity to that particular third-grade operator. I don't thiAk it 
has been general at all. 


Mr. Shaughnessy. There have been no changes in policy with re- 
spect to that as far as you know? 

Mr. Scott. As far as I know there haven't been. 

Acting Chairman Willtams. Are there any further questions? 

"We are indebted to you, Mr. Scott, for your appearance here and 
your presentation. Your statement will be filed for the record. 

Mr. Chantland. I might ask one question before he leaves the 
stand. You said you quit the gasoline business some years ago be- 
cause you found it unprofitable. Do you care to say why the un- 
profitableness came about, if you know? 

Mr. Scsott. We found in our distribution of gasoline that the mar- 
gin of profit from the wholesale standpoint was so small that it 
hardly justified the hazard and investment that it was necessary to 
put into the business to carry it on. We were distributors for the 
branded major products and the major company decided to come in 
and handle the distribution themselves and they wiped us out, so we 
decided not to continue on. 

Mr. Chantland. So you are one of the wiped out, are you? 

Mr. Scott. We were wiped out of the gasoline business. 

Acting Chairman Williams. That is all, thank you. 

Mr. Scott. Thank you, sir. 

(The witness, Mr. Scott, was excused.) 

Acting Chairman Williams. Mr. Ruark. 

Do you solemnly swear that the evidence you are about to give 
in this matter that is now pending shall be the truth, the whole 
truth, and nothing but the truth, so help you God? 

Mr. Ruark. I do. 


Acting Chairman Williams. Be seated. Give your name, your 
experience, and connections to the committee. 

Mr. Ruark. My name is B. W. Ruark. I am general manager 
of the Motor and Equipment Wholesalers' Association, located in 
Chicago. I have been connected with the automotive supply busi- 
ness since 1918, first with a manufacturer in the sales department, 
then as sales manager of a wholesale concern, and I went into the 
trade organization work in 1922. Since 1932 I have been the geur 
eral manager of the Motor and Equipment Wholesalers' Association. 

Acting Chairman Williams. You have prepared a statement, have 
you, and submitted it here? 

Mr. Ruark. Yes, sir. 

Acting Chairman Wiliams. Do you now desire to offer that for 
the record ? 

Mr. Ruark. I do. 

Acting Chairman Williams. It may be accepted for the record. 

(Mr. Ruark's prepared statement was marked "Exhibit No. 1225" 
and is included in the appendix on p. 9196.) 

Acting Chairman Williams. Now you may proceed and summarize 
yDur statement in a way that you think best. 

Mr. Ruark. Thank you, sir. 

The first part of my statement gives information concerning the 


type of organization that I represent, and in view of the fact that there 
seems to be sometimes a misconception of the ir- rtance of the whole- 
saler, I would like to point out just the function that he performs and 
the importance of that function to the hundreds of thousands of retail- 
ers, on the one hand, and to the thousands of manufacturers, on the 
other hand. In brief, we who represent the wholesaler regard him as 
a bridge that connects these two. I think experience has demonstrated 
that hardly any but the largest producers are able to maintain their 
own distribution outlets and contact directly with the large number 
of retailers throughout the country, and so the wholesaler performs 
that distribution function for him, and, as a matter of fact, makes it 
possible for many to remain in business. On the other hand, they per- 
form many valuable services to the retailer, and it is a fact that the 
great majority of retailers would not be able to continue to operate if 
it were not for these essential services of the wholesaler. Conse- 
quently, anything that tends to impair the ability of the wholesaler in 
the automotive business to carry on goes far beyond the effect upon 
the wholesaler himself and affects these two great trade divisions. 
I thought it would be well to refresh our minds upon that point. 

We refer to our people, or, rather, the people whom we represent 

Acting Chairman Williams (interposing) . You represent the Motor 
and Equipment Wholesalers' Association. Just briefly, what is that 
association ? 

Mr. RuARK. It is a national association of supply houses furnishing 
to retailers such items as accessories, replacement parts, and garage 
and service-station equipment. 

Acting Chairman Williams. How many members are in your asso- 
ciation ? 

Mr. RuARK. We have approximately 350 members in our associa- 

Acting Chairman Williams. And they are scattered all over the 
country,' are they? 
Mr. RuARK. All over the United States. 
Acting Chairman Williams. In air the States? 
Mr. RuARK. In 46 of the States and the District of Columbia; 
practically all. 

Acting Chairman Williams. They are the dealers in the motor 
equipment, the equipment that is furnished to the various retailers 
throughout the country? 
Mr. RuARK. Yes, sir. 

Actirg Chairman Williams. Filling stations ? 
Mr. RuARK. Filling stations, garages, car dealers, specialized shops, 
such as brake-service shops, -battery stations, etc. 

Acting Chairman Williams. Members of your association furnish 
to those retailers their supplies ? 

Mr. RuARK. Yes, sir. Of course, there are others supplying them, 
too. • 

Acting Chairman Williams. I understand ; but that is the function 
of your organization, your association? 

Mr. RuARK. Yes, sir; that is it; and those 350 members maintain 
in addition to their main establishments what we call branch stores; 
and the total number of outlets represented by them is around 2,200 
wholesale outlets throughout the country. 


Acting Chairman Williams. Is there any common source of sup- 
plies for these various members of your association? Where do they 
get their supplies ? 

Mr. RuARK. They get their supplies from the manufacturers who 
produce also for the car makers and w]io also supply the major oil 
companies ; such concerns, for example, as National Carbon Co., anti- 
freeze ; Champion and A-C Spark Plug Cos. ; Raybestos, Thermoid, 
and other brake-lining companies; and I should say, roughly, about 
250 companies are supplying supplies to our people. 

We point out in our statement that there is no basis for authori- 
tative data as to the percentage of business done by the members-; that 
is, percentage of total volume. We also point out that they are in 
competition with some or all of the major oil companies, and. in such 
competition they are confronted with principally two problems. One 
has to do with the distribution of merchandise for resale by the 
stations and the other has to do with the distribution of service- 
station equipment that is used by these stations; and both of them, 
according to widespread experience of members and information sup- 
plied the association by those members, are used to restrict purchases 
to outlets designated by some or all of the major oil companies; and. 
the device through which this is done is some form or other of the 
lease and agency station. 


Mr. RuA {K. We have prepared in addition to the brief a three or 
four page : tatement that we have' here, sir; also a summary of replies 
that we received to a questionnaire that we sent out the early part of 
this year to members after we had been told that this opportunity 
to present the case of our members to the committee would be 

I don't know that it is particularly necessary for me to go into detail 
in repetition of the statements that we have made in this statement, 
but the general condition, sir, as reported to us — and it can be verified 
by the experiences of members very generally — is that through the 
device of the lease and agency agreement or arrangement, after the 
brand of gasoline and motor oil that is covered in that has already been 
put in the station and the station has become identified, then that is 
held over the heads of the operators of those stations as a means of 
dictating to them that they shall buy this or that merchandise either 
from the major oil company or the major oil company's designated 
outlet, and in doing that tells them from whom they may not buy. 

Some of the types of products that are involved in this type of 
operation are spark plugs, for example, and principally the volume 
items, such as spark plugs, batteries; antifreeze has come into the 
situation. Just a little while ago I received quite a number of reports 
from the Kansas City area, in which our members stated to us that 
they had cancelations for antifreeze for the coming season — it is cus- 
tomary to place these orders in advance — from persons who had 
placed orders, and the reason given was that the major oil company, 
whose petroleum products they handled, had informed them that they 

* Included in "Exhibit No. 1225." 


must cancel those orders; and in the brief that I have filed, or the 
tabulation of returns to this questionnaire that I would like to call to 
your attention in a moment or two in high-spot fashion, we give a large 
number of instances of that type. 

In the sale and handling of garage equipment, the major oil com- 
panies in recent years have become very active. We have reported to 
us any number of instances in which a member of our association will 
contact a party, work with him in getting his place ready, or other- 
wise work .with him in determining the equipment that he needs, and 
then very frequently — it is becoming a very general practice, very 
much more so than it has been at some times in the past — a repre- 
sentative of the major oil company steps into the picture and in effect 
he says, "Now, there is no use for you investing your money in this 
equipment. We will supply it to you either at our cost or we will 
' supply it to you on almost any basis that is necessary to have you tie 
in with us in the handling of our petroleum products." .Sometimes 
that is on a cost basis, sometimes it is on a basis less than cost, some- 
times it is on a 5-year lease basis or a lease basis of some other dura- 
tion, and in that manner it is used to control or tie up the petroleum 
product there. In other words, the evidence shows that equipment 
is being used as a football and on a nonprofit basis to the oil com- 
pany handling it for the purpose of controlling the sale or purchase 
of petroleum products, and consequently at the same time giving 
them practically the same effect as a standard lease and agency 

Those are the two points that we have covered in our statement, 
and on page 2 of the statement ^ we set forth a copy of a letter that 
was sent by a representative of an oil company in Ohio in which he 
tells them very frankly that they will not be permitted to handle 
products other than that specified or dictated by the major oil 

I^think, sir, we have 'covered the particular points in our state- 
ment except toward the last of it we set forth our ideas as to some 
remedies that might be taken by this committee. I would like to 
withhold comment on that part and refer rather briefly to the tabula- 
tion which starts on page 5. - 

Excuse me for taking time on this to repeat something, but this is 
a national picture. It comes from practically every State in the 
Union and -represents experiences of members in this problem of 
meeting the competition of major oil companies. 

First, the bulletin was sent to approximately 360 persons; 142 
replies were received, about 40 percent, and in trade association work 
that is a very hi^h response. 

Our first question was: 

Have a large number of the filling stations in your area which were for- 
merly operated by ma.ior oil companies been turned over to the former 
"managers" and now claim to be "independent owned stations"? 

One hundred twenty-nine report "Yes"; 3 report "Not many." 
Under each of those we have indicated some representative opinions 
or representative statements. 

1 Appendix, p. 9196. 

124491 — 40— pt. 16, sec 3- 


Question (2) : 

Concerning these former "company owned" and now "independent" stations, 
do they now act as though they were truly independent aud free to purchase 
whatever brands of merchandise they please? 

One hundred ten report "No" ; 20 report "To a very limited degree," 
and 2 report "Except for tires and batteries." 
The next: 

Or, as far as you can see and judge, is there the same and as actuf^l a control 
of purchases, brands handled and policies of operation as existed before they 
changed to so-called "independent" stations? 

One hundred eighteen report, "Yes," that is practically the same 
degree of control as before the change; six report, "No," and six 
report, "Very little change." 

(Senator O'Mahoney assumed the Chair.) 

The Chairman. Were these "Yes" reports received from persons 
telling of their own experience or telling of the experience of others ? 

Mr. RuARK. My understanding is they were telling of their own 
experience that they had met up with in their job of operating a 

The Chairman. What I mean is this : How many of the 118 were 
themselves lessees then when they answered ? 

Mr. RuARK. These were not lessees, Senator. These are members 
of our association who are attempting to do business with the lessees. 

The Chairman. I see. So these are wholesalers dealing with re- 
tail outlets and were reporting in response to this inquiry their 

Mr. RuAi?K. That is right. The type of wholesalers (if I may say, 
two right in your own home town) are fairly representive of the 
entire membership of our association. 

Where one of these "now independent" stations carries the petroleum prod- 
ucts and/or the accessories of supplies marketed by one of the major oil 
companies: (a) Are you able to seU them any of your petroleum merchandise? 

Eighty -eight report that they are not; one reports "Yes," and 
twenty report "Occasionally." 

There is one comment that I have checked under this heading in 
which one reports, "Very little; they are afraid to display and nor- 
mally merchandise it." In other words, it seems to be quite the 
practice that where the members of this association are able to get 
their products of certain types into these stations, the operators are 
not\ permitted to openly display it, or, as the common saying in the 
trade is, they have to bootleg it.. The record also shows statements 
of member?! to the effect that when this situation exists and when 
lessees have been, to use the expression, caught bootlegging merchan- 
dise bought outside of the designated sources, it has been returned to 
jobbers and credit claimed. 

Under question 3 (6) : 

If you can sell them, do they publicly display and advertise it or do they 
market it on a bootleg basis, keep it out of sight until and unless called for by 
a customer? 

We have already answered that. The summary is given on the top 
of page 9: 74 report "Bootleg basis, keeping it out of sight until 
called for." Four report that it is properly displayed. 


We asked a third division of that question 3 (c) : 

Are you able to sell thpm supply and accessory items which compete with the 
major oil company private branded products such as tires, batteries, etc.? 

Ninety-six report "No," that is, they are not able to sell those 
products, and twenty-three report "Occasionally." 
Section (d) under that question: 

If unable to sell any of these products, what is the usual reason given as to 
why they will not buy your brands of merchandise? 

We didn't attempt to catalog the reasons, that is we didn't attempt 
to compile them in a statistical form, but there we give a large num- 
ber of responses, and one on there is right interesting, it is about the 
third of the page: 

Will affect bonuses or bonus not allowed if found in station, or station will 
■ be rented to a party who will do as told. 

Question 4 on page 11 : 

Have you or your salesmen ever been told by these independents that their 
lease or connection with this major oil and gasoline supplier — 

That should be "his"— 

with his major oil and gasoline supplier would be put in jeopardy if they 
purchased and/or displayed other and competing products? 

Ninety-two report "Yes," 12 report "No," and 17 report "Inti- 
mated but not actually told by the operator." 

And then we give 2 or 3 instances under that which brings the 
point right down to actual cases. Question 5 : 

Have such statements immediately referred to been occasional or fre- 

Seventy-five report "Frequently," 22 report "Occasionally." 
Under question 6 : 

Dq^s your business expeiyence and personal observation lead you to feel 
that ^these stations are just about as rigidly controlled by their major oil 
company suppliers now as they were before they became independent? 

That in a way is a duplication of question No. 1, so we didn't 
make any statistical tabulation. We gave two or three of the typical 

Question 7 : 

What is your ext'*«:^9nce in competition with major oil companies in the 
sale of equipment? 

And under that, gentlemen, we give a number of instances based 
on the method of what we referred to as "footballing" equipment in 
order to control the purchase and sale of petroleum products. 

Page 13 and 14 give those comments and page 15 continues the 
comments. Now if you will please note paragraph 2 under section 
8 on page 15 : 

Since the above-outlined cond' ion must be corrected nationally, it would be 
a further detriment to become involved locally. ' 

I might explain that that is one of the reasons why the association 
has acted for its members in this matter, and at the same time to 
provide a national picture based on the e]^p§rience of operators 
over the country at large. 


The Chairman. Where is that statement? 

Mr. RuARK. That is the second paragiaph under section 8 on 
page 15. Then in the fifth paragraph is a statement that might be 
worth while to particularly point out. 

They operate as "leased" stations but actually every operation is con- 
trolled and dealer reports are required with every transaction, the same as 
before they were leased to operators. Certainly requires some attention from 
Government as leases are nothing except method of avoiding Social Security 
tax and chain-store tax. Oil companies resort to minor excuses to break 
leases if other lines are handled. Excuse of dirty rest room or most any other 
violation of their many rules and requirements. Believe most any station 
operator will reveal necessary facts if questioned in proper manner with as- 
surance his name will not be revealed. 

Now at the bottom of page 16 and at the top of page 17 is a 
summary of replies to the question : 

Will you name the major oil companies involved in your experience upon 
which replies to this questionnaire are based? 

Keeping in mind a^ain that there were 142 replies to this ques- 
tionnaire, this gives information according to the experiences of 
members, the oil companies with whom they are in competition in 
this matter. Now I believe that is about all. 

The Chairman. What do you mean by the very first one, "Stand- 
ard"? Which Standard and how many? 

Mr. RuARK. Well, that wasn't broken down because the members 
of our trade regard that 

The Chairman (interposing). Well, on page 17 we find "Esso." 

Mr. RuARK. Yes. 

The Chairman. So apparently there is some distinction? 

Mr. RuARK. There must be. I don't know just what they had in 
mind when they made that distinction there. 

The Chairman. Well, this questionnaire was directed to retailers 
or was directed to your members ? 

Mr. RuARK. Wholesalers. 

The Chairman. Wholesalers, with respect to retail stations which 
had formerly been operated by the majors and were now being 
operated by lessees*? 

Mr. RuARK. Yes. With respect to their experiences and the eflfort 
to sell those stations. 

The Chairman. Yes; so that this whole statement when boiled 
down amounts to this, that the lessee operated stations of the majors, 
with respect to this matter of selling departments, acted about the 
way they acted before the leases were made ? 

Mr. RuARK. Yes, the same as when they were company owned and 
operated. That is the purport of it ; yes, sir. 

The Chairman. Now then, what is your experience with respect 
to stations which are neither owned and operated by the majors nor 
leased by the majors? 

Mr. RuARK. You mean the iruly independent stations^ 

The Chairman. Yes. 

Mr. RuARK. The experience of our members is that they have little 
difficulty in doing business with them. 

The Chairman. You mean you can do business with them? 

Mr. RuARK. Yes ; with the truly independent station. 

The CuAiR-MAT^ AU right Now. how niany of those statians' pro- 
portionately are there how as compared with, say, 2 or 3 years ago« 


Mr. RuARK. Well, our information is that they are less and le-ss 
all the time. I don't have the percentages on that. 

The Chairman. Have you made any effort to get such percentages? 

Mr. RuARK. Well, under or during the N. R. A. we went into that 
quite fully and we developed some information along that. The 
trend then was very definite toward a lessening of the number of 
the truly independent stations. There is somewhere in here some 
information. I don't recall just where, that giv^ a small section 
there and shows the percentage of independents in some restricted 

The Chairman. You mean in your statement? 

Mr. RuARK. Yes; as indicated generally. 

The Chairman. What is your own personal opinion, based on your 
experience ? 

Mr. RuARK. Well, our personal opinion is that the truly — the truly 
independent stations are rapidly going out of business. 

The Chairman. Dof that mean, then, that the majors are ac- 
quiring a larger percentage of the retail operators' outlet? 

Mr. Ruark. That is ri^ht. . 

The Chairman. And is it your opinion that there is a steady trend 
in that direction? 

Mr. Ruark. That is true; yes, sir. 

The Chairman. What recommendation do you make? 

Mr. Ruark. Well, sir, I don't know that I can add anything to a 
number of things that have been said. I am not an expert in this 
particular phase of things, but I did happen to be chairman of the 
operating committee representing seven wholesale associations in con- 
nection with the wholesale automotive code during the N R. A. and 
we came in contact there very frequently with the principle of pro- 
hibiting the conditioning of the purchase and/or sale, of any one 
product on a purchase and/or sale of any other product. 

Just how far that principle can practically be applied I don't know, 
but we think there is a basis there for legislation if present legis- 
lation doesn't exist in proper form whereby a remedy might be 
fc'tnd for this situation. 

Then another thing that has gone through our minds on this is 
the old, or the oft-mentioned subject of divorcement. We have, 
I believe, precedent for that in the packers' consent decree. It is 
our thinking on the subject that if it is against public policy, and 
it has been determined to be, for the meat packers to control the meat 
industry from the animal on the hoof until it goes to the consumer's 
table, because that represents such an aggregation of economic power, 
that it is likewise against public policy for the petroleum industry 
to be controlled from the crude to the time it goes in the tank of the 
car If our information is correct, there is further precedent for 
that type of remedy in the divorcement of the coal companies from 
the ownership by railroads. Then in several of the States, I think 
North Dakota is one, divorcement of the ownership of theaters from 
the ownership and control of the producer. 

We don't say that that is any panacea for it, but that is one remedy 
that we think can very well be given consideration. 

Mr. AviLDSEN. Mr. Witness, before you go on to the next subject, 
it is not clear to me just why you feel the oil companies are different 
from the packing companies today. I understand the packing com- 


panies deliver meat to the retail meat market just the way the oil 
companies now deliver oil to the retail service station. 

Mr. RuARK, They do in that respect. Of course, the principle of 
divorcement, I think, would have to be applied in a different way, 
Mr. AviLDSEN. Isn't the oil industry divorced from marketing just 
as much as the meat-packing industry? 
Mr. RuARK. I understand it is not. 
Mr. AviLDSEN. What is the difference? 

Mr. RuARK. Because in some cases they have their company-owned 
stations and the difference is that they have as complete control over 
their leased stations as they had formerly, so in reality they control 
the proposition clear through. 

Mr. AviLDSEN. You mean, then, that they should not be allowed 
to lease stations, is that it? I mean to say, the meat packers now 
have fleets of trucks and salesmen who go around selling meat to the 
retail meat markets, just the way the oil companies go around selling 
Mr, RuARK. Yes. 

Mr. AviLDSEN. They may not lease meat markets to these retail 
merchants, but except for that difference it scenes to me that there is 
no great difference between the way the meat' packers do business 
and the way the oil companies do. 

Mr. RuARK. They might not with respect to petroleum products, 
but when I am speaking about divorcement what I mean is this,: 
The divorcement of the handling of merchandise other than theit 
petroleum products, because I am concerned here, representing the 
people I do, primarily with the sale of automotive equipment and 
supplies as contrasted. If it is necessary to go that far, and divorce 
the handling of that type of product from the handling of the 
products on the part of the major oil companies, that is what we have 
in mind. Does that answer your question? 
Mr. AviLDSEN. Yes; it does. 

Mr. Snyder. In the analogy you are making between the meat- 
packing and the petroleum industry, are you making a comparison 
between the automotive supplies in the filling station and canned 
goods which the packers formerly sold to the meat dealers? Is that 
the analogy you are making? 

Mr. RuARK. I don't know just the detail of that, but in general I 
would say "yes," that is t^he analogy I am making. 

Mr. Snyder. Since tfie decree agdlsfet the packers prohibited 
them from distributing canned goo'ds, groceries in general, fruits, 
■ and all those products which were not directly packing-house prod- 
ucts, I thought you W3re making the- analog between those products. 
Mr. RuARK. If I had been a little more informed about the detail 
of that, I think probably I would have stated it that way, but the 
base point of this, gentlemen, is that our people must make a profit 
in the operation of tneir businesses or they go out. They don't have 
profits from other operations to sustain losses, and I believe there has 
been presented to the committee evidence as to the profits in pipe-line 
operations and various other operations, and that is what. we have in 
mind. We believe that if independent business is to survive, there 
must be some protection from the use of profits from multiple opera- 
tions to finance an-operation at a Joss which results in unfair competi- 
tion to others engaged in that business. 


The Chairman. What would the effect be upon the price paid by 
the consumer? 

Mr. RuARK. Well, we think that tRere would be no — -we believe 
that the consumer would obtain just as fair prices, because there are 
many wholesalers and they are in competition with one another, and 
we believe that competition there would protect the interest of the 

The Chairman. The statement is made, when your suggestion is 
offered, that if this competition from the majors were eliminated, 
that is to say, if they were deprived of their outlets, the price to the 
consumer would almost immediately rise. Have you any opinion 
about that? 

Mr. RuARK. Well, my opinion. Senator, is that that is not a state- 
ment of fact. 

The Chairman. On what grounds? 

Mr. RuARK. And my further opinion is that perhaps price to the 
consumer isn't the ultimate consideration if it means the death of 
independent business. 

The Chairman. You think the public interest requires the support 
of independent free enterprise? 

Mr. RuARK. I think so. I think that has been the theory of our 
whole national existence. 

The Chairman. Well, then, would you go another step and ex- 
press the opinion that integrated industry is not in the public in- 
terest ? 

Mr. RuARK. Well, that is very diflScult of determination. My own 
opinion is that integration has been carried far too far for the public 
interest. Just where the law of diminishing returns sets in, and just 
how far we should integrate and how far we should not, I am not 
competent to express an opinion on that. 

The Chairman. Of course, if any legislation were undertaken of 
that kind, it would be necessary for the legislators to draw the line 

Mr. RuARK. That is true. . 

The Chairman. And you don't offer any recommendation? 

Mr. RuARK. I don't offer any recommendation there because the 
facilities for determining that are, or at least thus far have been, 
beyond our reach. 

Mr. AviLDSEN. To get back to this divorcement business, do I 
understand that people like Goodyear Tire & Rubber are in the busi- 
ness of retailing gasoline and motor oils? I have seen a number of 
stations with their name on. Do they sell tires, gasoline, oil, and so 

Mr. RuARK. I believe Goodyear Tire & Rubber is. Firestone serv- 
ice stores are usually referred to as the typical example of that 

Mr. AviLDSEN. Do you. feel that their oil business and gasoline 
business should be divorced from their tire business? You say the 
oil companies should go out of the tire business. Do you say the tire 
companies should go out of the oil business also ? 
Mr. Rtjark. I am inclined to think so. 
Mr. AviLDSEN. You are not sure? 

Mr. RuARK. I am not sure, because you would have to study the 
conditions between particular operations. 


Mr. AviLDSEN. What would be the difference between the two? If 
one is wrong, why isn't the other wrong? .. .« , 

Mr. RuAKK. As I understand it, there might be a diifference, in the 
extent of the economic power of different ones, and the ability to use 
that power in unfair competition. . 

Mr. AvTLDSEN. Do you know the history of the thing? Did the 
tire companies start out by selling oil or did the oil companies start 
out by selling tires? 

Mr. RuARK. I don't know the history of that. 

Mr. AviLDSEN. It seems to me that some^bpdy, in order to protect 
his market, had to go into the same combination as his competitor. 

Mr. RuARK. That might be, sir, but in pur opinion, if this prin- 
ciple of competition, regardless of why thpse practices are developed, 
results in such tremendous integratiqn and, results, in forcing the 
from-time-immemorial type of indejjendent operator out of business 
in this country, regardless of why it came into being the problem 
ought to be met with if it is possible to find a reme(iy' 

Mr. AviLDSEN. You say, on page 17 of your :fDrmal statement, 
"Texaco, Signal, and Rio Grande has discontinued -naeroliandise con- 
trol." Just what do you mean by "discontinuing -mprphaaidise con- 
trol"? ■ '■ -,;.; 

Mr. RuARK. Well, that means — you see, this is based upon a report 
that was made to us, and that means that they no longer are djealing 
in or handling accessories. 

Mr. AviLDSEN. By "merchandise" you means accessories? 

Mr. RuARK. Yes; my whole statement here is based upon automo- 
tive parts, accessories, and garage equipment. 

Mr. Shaughnessy. Mr. Ruark, you don't intend this to be a 100 
percent indictment of all the oil companies, then? There are some 
oil companies where equipment may be sold to service stations today. 
Isn't that true? 

Mr. Ruark. Well, you know, it is pretty difficult to make a 100- 
percent indictment. We have tried to cover that situation in ques- 
tion 9. 

Mr. Shaughnessy. I was thinking of the fact that in Mr. Pew's 
testimony h^re, Mr. Cox asked him whether the Sun service stations 
were free to sell any kind of automobile accessories of any kind that 
they would like to sell, and Mr. Pew said that that stateinent was 
quite true. Mr. Cox then asked him : , . , .^ ,. - 

Have you ever received any complaints from people : lii' - th€f iiiQtls'try, that 
representatives of your company have attempted to persuade, or imsbnle cases 
have ordered tl.e operators of filling stations to discontinue t^e goods x)f com- 

Mr. Pew said: 

Yes ; I have heard complaints of that kind. I never was quite able to under- 
stand just what their viewpoint was. It always seemed that if Mr. Chrysler 
were to appear before this committee and object to the fact that Ford dealers 
wouldn't put his cars in their exhibition rooms, therefore there was something 
wrong with the Ford dealer. At the same time we do not restrict our dealers 
from selling the products of other manufacturers of oil. 

Mr. RuARK. Whose testimony was that? 

Mr. Shaughnessy. Mr. PeAv, president of Sun.^ 

Mr. Pew's testinrony appears In Hearings, Part 14. 


Mr. RuARK. If you will bear with me just a minute I think I have 
something on that. 

What I thought was on that point, dealing with that particular 
company, is another company. I don't know whether there is any- 
thing in the record here dealing particularly with Sun or not. 

Mr. Shaughnessy. On page 7 of your mimeographed statement 
you state that "the only independent stations in our territory that can 
buy where they please are Sun stations." Is that correct? 

Mr. RuAKK. That is on page 7? 

Mr. Shaughnessy. Yes; the fourth line. 

Mr. RuARK. That might be true in a particular territory. 

Mr. AviLDSEN. That would indicate that so far as Texaco and Sun 
Co. are concerned, they do not interfere with your dealers handling 
automotive accessories. Is that right? 

Mr. RuARK. So far as I know, that would indicate that. Texas at 
one time had an arrangement where, instead of iiandling directly, 
they designated a certain supplier. Whether or not that is still in 
existence I don't know. It appears to be the pretty common practice, 
for example on the west coast, for certain of the oil companies, in- 
stead of maintaining their own distribution, to make a hook-up with 
certain wholesalers to supply these accessories, and other wholesalers 
complain that because of that they are unable to do business with 
these stations. Shell Oil Co. recently, according to our information, 
has entered into a contract with a number of wholesalers, resulting in 
the same statement of conditions. 

Mr. Snyder. Are there wholesalers members in your association? 

Mr. RuARK. Some are; yes. 

Mr. AviLDSEN. Do you know of any other major companies whicju 
follow the same general policy as Texas and Sun, namely, in not 
insisting on the dealers handling any particular line of auto acces- 

Mr. RuARK. No ; I don't. It is a pretty general condition- in thb 

Mr. A\^LDSEN. But you wouldn't say 

Mr. RuARK (interposing). It seems to be part and parcel of thb 
lease and agency agreement. 

Mr. AviLDSEN. But you wouldn't say they are necessarily the only 
ones not controlling merchandise. 

Mr. RuARK. No; and I am not testifying that they are not. |\ly 
information is inadequate on that. ' -'- 

Mr. AviLDSEN. But the information you submitted here indicates 
that they probably are not. ' 

Mr. RuARK. They probably are not. 

Mr. AviLDSEN. There are references in your reports here to indicate 
that they probably are not. 

Mr. RuARK. I understand that some time ago tliere was a Federal 
Trade Commission proceeding against Texaco which resulted in their 
ceasing to directly handle this merchandise. 

Mr. O'CoNNELL. Well, Mr. Ruark, these statements of the charac- 
teristics of certain specific companies, as I would understand it, were 
quoted from the reports that you received from individual members 


of your association, so that in reading any statement in here, par- 
ticularly of the quoted provisions, it would merely tend to indicate 
that the condition would prevail in a particular territory from which 
your particular member was reporting. 

Mr. RuARK. Yes. 

Mr. O'CoNNELL. It wouldn't necessarily indicate a general condi- 
tion as regards any company^jojie way or the other. 

Mr. RuARK. Except that we must keep in mind that this is a 
Nation-wide report, and we will find that in some territories experi- 
ences of members seem to run more to a particular company, and in 
other territories the experience will run to others, but the statement as 
a whole shows that on a national basisj lease and agency is used to 
control the stations to the same degree, or practically to the same 
degree, as they were before they were leased. 

Mr. Snyder. Mr. Ruark, isn't the volume of automotive equipment 
sold by these stations really small as compared with the total volume 
of petroleum products sold throug^h all the stations ? 

Mr. Ruark. The volume of equipment — are you speaking about 
merchandise for resale? 

Mr. Snyder. Supplied to these stations by your members, for in- 
stance. Isn't that small as compared with the total volume of petro- 
leum products? 

Mr. Ruark. It might be small in terms of total dollars and cents, 
but in terms of importance to the filling station it is quite important. 

Mr. Snyder. Why do you think the integrated oil companies are 
so interested in this line of merchandise ? 

Mr. Ruark. Well, I think that is probably to be answered in a 
sort of double-barreled way. In the first place, the testimony that' 
we have given to us shows that it is a method of controlling the pur- 
chase and sale of petroleum products, in which they are very much 
interested ; and, in the second place, it was developed, I am quite sure, 
in the testimony during the N. R. A. that at least some major oil 
companies' executives testified that it cost them about 6 cents a gallon 
to n3.arket at retail gasoline, and it was also brought out, if I am cor- 
rect in the record there, that the usual practice is to allow the operator 
about from 3 to 4 cents, and consequently he has got to have profit 
from some other source to be able to show a profitable operation, and 
that is where the importance of batteries and tires and spark plugs 
and lamp bulbs and antifreeze and merchandise of this type comes in. 
It has a sort of twofold significance. 

Mr. O'CoNNELL. That is the significance to the operator of the out- 
let. I understood Mr. Snyder's question referred to its importance 
to the oil company. 

Mr. Ruark. Of course, we have no records on that. We are not 
competent to testify on that., 


Mr. Ruark. Another suggestion has come to us, gentlemen, that I 
submit. We were mentioning divorcement there. The problem to 
us seems to be the ability to divert profits from one operation to the 
financing of another operation on a basis that makes it impossible for 
independent operators to continue to do the service job that they are 


called upon to do. Now, we don't want to take the position, or at 
least I personally don't want to take the position, that any citizen 
shouldn't have the right to engage in business. We believe that there 
might be something to the idea that major oil companies should be 
required to segregate their business, and possibly under the super- 
vision of the S. E. C. be required to cease following a policy of mer- 
chandising certain types of equipment in competition with others at 
a loss. The Government is extremely interested in business making 
a profit, because business pays taxes on profits, and in some of the 
comments that were brought out in our statement, the opinion is ex- 
pressed that the Government is losing a large revenue under Social 
Security • taxes, for example, because there are many of these stations, 
when considered individually, that don't have the number of employees 
required to make them eligible for that tax. 

The Chairman. Do you mean by this that Congress ought to pass 
a law to prevent anybody from doing business at a loss? 

Mr. RuARK. No; I don't mean that. If you remember, Senator, I 
spoke about following a consistent policy. There is a distinction, 
I think — a consistent policy with the intent of accomplishing certain 
things, or with the effect. 

So that is one solution that has come to us, and then, for reasons 
that you will immediately notice, I sort of hesitate, but we have been 
very much enamoured with the idea of a national charter. 

The Chairman. That sounds reasonable. 

Mr. RuARK. That would be the vehicle. Those, generally, are our 
thoughts on this. As I said in the beginning, we don't pose as ex- 
perts ou this particular phase of the matter. 

Tlie Chairman. Are there any other questions? Mr. Ruark, have 
you completed your statements? 

Mr. Ruark. Yes, sir; as far as I am concerned, unless there are 
further questions. 

The Chairman. The committee is very much indebted to you. You 
may be excused. 

(The witness, Mr. Ruark, was' excused.) 

Mr. Sn^T)ER. Before the next witness comes on, Mr. Chairman, Mr. 
John D. Gill submitted the material which the committee asked him 
for at the time he was testifying here. I have gone over this ma- 
terial and believe it will afford some explanation of the material 
which was in the charts which he did not have available at that time 
for explanation, and I offer it for the record. 

The Chairman. Without objection, the material may be received, 
and will be printed in the appendix, in explanation of Mr. Gill's 

(The material referred to was marked "Exhibit No. 1226," and is 
included in Hearings, Part 14, appendix, p. 7676.) 

The Chairman. The attention of the Chair has been called to the 
fact that when Mr. Ramsdell was on the stand a few, days ago, and, 
offered "Exhibit No. 1210," it was not formally ordered to be printed. 
Wjthont objection it is now ordered to be printed. 

("Exhibit No. 1210" is printed separately as Hearings, Part 15-A.y 

The Chairman. Who is the next witness? 

Mr. Snyder. Mr. Crouthamel. 



• ';,.- . '. ■ 

The Chairman. Do you solemnly swear that. the testimony you 
. v.are .about to give in this proceeding shall be the truth, the whole 
truth, and nothing but th^ truth, so help you God ? 

l^r. Crouthamel. I do, 
. The Chairman. You may be seated, Mr. Crouthamel. Will you 
give your name to the reporter, please? 
,.. ;Mr, Crouthamel. My name is Henry A. Crouthamel. I represent 
,,,the, Maryland Association of Petroleum Retailers as executive 

The Chairman. How many members are there in that organiza- 
tion? - ,,,, ..: 

Mr. Crouthamel. About 350 at the present time. I have also been 

connected with other associations such as the Eastern States Pe- 

.j tyoleum Association, which consisted of six Eastern States, as vice 

■ president of that association back in about 1920 or '30. I helped to 

originate the National Association of Petroleum Retailers in Mil- 

o.waukee during, the code days. I don't recall the exact date — I think 

.vit-.^va^.-a-bout '32 or '33. I was assistant to the president of that 

/.association for 2 years, and was the Washington representative of 

|:)tiiat;«apte.as30ciaticMi during the National Recovery Administration. 

;4i :iU.<iJ.7'.. .;_:t ,:•.■■ '.. -•, • •• :• :" 

^ ,,,;■, <_, ■, - - p|iatl4ER' IN BALTIMORE' MARKET :. 

.,!',, ,Mr.: Crouthamel. I only represent at the present time the Mary- 
land Association and myself a^ m individvial so-called divided 
dealer, which, when I started in business in 1918 at the same loca- 
tion where I am at today, in Baltimore, was called a "split dealer," 
..handling; products of different, companies. Those ,5plit dealers are 
-. j'ust about, out of the picture completely. 1 ajp one of, the few left 
in the country. My idea is that that type of operation, Mr. Chair- 
man and gentlemen of the committee, was the, only, and would be 
today the only, real econorni^ way of merchandising petroleum prod- 
ucts to the consumer, , and it, that would have ]:^^e% allowed to have 
been continued, the coiisumer today -wojiild pay less for his gasoline 
and lube oils and any other petroleum prcwducts than he is paying 
today, although the prices of gasoline have come down, as possibly 
has been testified before your committee. 

The Chairman. You think the prices should have gone down fur- 
ther than they have gone? . 

Mr. Crouthamel. I do. 

The Chairman. And you believe that this whole system, which you 
now say has been practically eliminated, would more nearly accom- 
plish that purpose than t,he one that has succeeded it? 

Mr. Crouthamel. Yes, sir. . 

Mr. Avildsen. Are you still running this split station ? 

Mr. Crouthamel. Yes, sir. 


Mr. AviLDSEN. You have been able to stay in business despite the 
handicaps of the other people who ran split stations ? 

Mr. Crouthamel. Through the grace of God, possibly. If I didn't 
have a lenient mortgage company, which allowed me not to pay in- 
terest for the last 2 years I wouldn't be in business today. If I had 
paid interest in the last 2 years I wouldn't be there. 

Mr. AviLDSEN. But you are making a profit on your station ? 

Mr. Crouthamel. I am not. 

Mr. AviLDSEN. You are operating at a loss ? 

Mr. Crouthamel. I have operated in the red now for 4 years ; this 
is the fourth year. 

Mr. AviLDSEN. What is the name of your station? 

Mr. Crouthamel. "Gasoline Alley." 

Mr. AviLDSEN. Is it downtown? 

Mr. Crouthamel. No, in the suburbs; in the Wallbrook section of 
northwest Baltimore. It is the original gasoline alley, and it is in 
my estimation the only way to serve the public for the various tastes 
or desires of the motoring public. There is no business, in my knowl- 
edge, that is comparable to the gasoline business in that the retailer is 
compelled to sell only one brand of goods. The grocer can put any 
brand of coflfee on his shelf that he wants ; he can put any meat packer's 
meat in his place, if he has a meat store; he can put any brand of 
canned goods in, a variety of a dozen or more ; but the retail gasoline 
industry, in the last several years, the dealer is compelled, absolutely, 
to sell one brand of goods only, and it makes him a slave — an absolute 

Mr. AviLDSEN. How many brands do you handle now ? 

Mr. Crouthamel. I have Richfield and Betholine, which is the same 
company, which is now under the domination of Sinclair Refining Co. 
I have Atlantic White Flash and Atlantic Ethyl. Those are the only 
two major' companies that I can buy from ^today. The Sun Oil Co., 
about a year ago, notified me that they would remove their pump from 
my premises, which they stated was the policy, of pulling all* the 
pumps out of independent stations. That particular pump — that 
location, not the particular pump, because I have had several pumps — 
was the first Sun gasoline pump operated in the city of Baltimore, and 
they have since then pulled out their pumps of practically all inde- 
pendent and individually owned service stations in the city of Balti- 

Mr. AviLDSEN. Do the other major companies refuse to selj you? 

Mr. Crouthamel. The Standard Oil Co. of New Jersey approxi- 
niately 6 months or more ago, when I got Atlantic Ethyl. I called 
up the sales department and inquired if I could buy Esso in my own 
equipment. They told me definitely "No," unless I went 100 percent 
and sold their products only. 

Mr. AviLDSEN. They wouldn't sell you at a half cent above the 
current price ? 

Mr. Crouthamel. No, sir. 

Mr. AviLDSEN. Is that true of the other major companies? 

Mr. Crouthamel. Not all of them. 

Mr. AviLDSEN. Some of them you could buy from at half a cent 
advance ? 

Mr. Crouthamel. Atlantic did sell me Ethyl on the same question. 


"split" dealer and its EFFECT ON PRICE TO THE CONSUMER 

Mr. AviLDSEN. Do you pay, without an a4vance, half a cent a 
gallon more? 

Mr. Crouthamel. Absolutely. 

Mr. AviLDSEN. Oh, you do ? 

Mr. Crouthamel. That is the discrimination I would like to speak 
of, and, Mr. Chairman, if I may be permitted — it is rather old, but 
I have a bripf here, a copy of a brief of certain practices existing in 
the petro . n industry which was submitted by the National Associa- 
tion of Petroleum Retailers of Milwaukee approximately March 1935 
to the Federal Trade Commission, treating on just that same thing, of 
the discrimination between the split dealer and the 100-percent dealer, 
and if it is agreeable, I would like to submit that. 

The Chairman. Well, did the Federal Trade Commission act on it ? 

Mr. Crouthamel. I want to answer that question in this manner, 
that the Federal Trade Commission has never even acknowledged it, 
much less acted on it. 

The Chairman. Have you submitted it to the committee heretofore ? 

Mr. Crouthamel. The original of that, signed by the president' 
and executive secretary and myself as vice president of the first region, 
was mailed to the Federal Trade Commission about March 

The Chairman (interposing). I mean was it submitted, to this 
committee ) ef ore ? , , ! 

Mr. Croi thamel. No, sir. ; ': I 

The Chairman. This is your first presentatiotu ol it? ' • -: . 

Mr. Crouthamel. That is correct, ,, 

The Chairman. Well, it may be received and filed. J tljink we 
will hold it up for the present.^ 

Mr. Crouthamel. I think it treats and substantiates some of my 

The Chairman. Your statement will be made a part of the record. 

(Mr. Crouthamel's prepared statement was marked "Exhibit No. 
1227" and is included in the appendix on p. 9205.) 

The Chairman. I would like to have you explain, if you will, why, 
in your opinion, you feel that tlus split-station service would lower 
the price of gasoline. 

Mr. Crouthamel. I will explain that in this manner, Mr. Chairman. 
I will take in my own location, and that applies to many, many other 
locations throughout the United States, and strictly in a residential 
area. I might state it in this manner. I personally will go to a 
grocery store and I want Maxwell House coffee. He tells me I can't 
have Maxwell House coffee in his store, but he will give me Kellogg's, 
or whatever the brand may be. I don't want it and I will have to go 
to another store. The same thing applies to the sale of gasoline. By 
having a variety in one location, I can sell and satisfy the tastes of 
the various buyers that are in that community. Otherwise, if I am 
compelled to go 100 percent, which I don't know why I haven't 
been in the past, excepting possibly thicklieadedness^as I said, I could 
satisfy those various tastes. Otherwise, if I have six different brands, 

^ The document was later admitted to the record as "Exhibit . No. 1229" ; included in 
the appendix on p. 9211. 


it would require five other stations in the same area. Those five other 
stations, will have to draw off my gallonage on somebody else in the 

The Chairman. I am talking about price. 

Mr, CROUTHAijuEL. And that builds up cost of distribution. That is 
what I am getting at — price. It builds up the cost of distribution and 
naturally the gasoline will have to be sold higher as your cost of 
distribution goes up. The multiplicity of stations when there is only 
a certain amount of gallonage in an area certainly will raise the cost 
of distribution. 

The Chairman. Well, now, when you were selling — as you are oper- 
ating your station now, do you have a variety of prices for the 

Mr. Crouthamel. Only as to blends or straights; in other words 

The Chairman. Regulars are all sold for the same price? 

Mr. Crouthamel. That is correct — in my place. 

The Chairman. No matter what pump they come out of? 

Mr. Crouthamel. If they come out of Richfield ; I will say 17.8 at 
the present time including tax ; if it is White Flash, which is regular, 
of the Atlantic Co., it is 17.8, 

Tlie Chairman. Well, now, was there ever a time when you sold 
gasoline, regular gasoline, out of different pumps at different prices? 

Mr. Crouthamel. Not myself, excepting different brands. I have 
a non-national brand that I sell at a lower price. 

The Chairman. That is right, but your experience has been that 
throughout the operation of your station you have always sold the 
regular gas at the same price? 

Mr. Crouthamel. That is right. 

The Chairman. No matter what pump it came out of? 

Mr. CROtrTHAMEL. That was usually always established by the oil 
companies — what price we should sell at. *In other words, when, the 
price of tank wagon changed, we get a postcard the same morfting 
stating that the price of tank wagon has gone up a half cent or three- 
quarters, whatever it might have been. 

The Chairman. That is the same system that now applies ? 

Mr. Crouthamel, Very few companies send out that information 
any more. 

The Chairman, Well, the effect is the same ? 

Mr. Crouthamel. The effect is the same. 

The Chairman. The operation of either wholly owned or leased 

Mr. Croijthamel. That is" correct. 

The Chairman. So that there is no element of price competition 
in this situation as you have described it ? 

Mr. Crouthamel. There is plenty of price competition. 

The Chairman, No; I am talking now about the split station versus 
the divided station. 

Mr, Crouthamel. Not only that; we have to pay a half cent more 
for the product than the 100-percent station. 

The Chairman. I am trying to determine the reason you have in 
mind that brings you to the conclusion that divided stations would 
reduce the price of gasoline. 


Mr. Crotjthamel. No, no. 

The Chaibman. The only reason you have given us now to date 
is that the cost of distribution is greater because of the undivided 

Mr. Crouthamel. Multiplicity of stations increases your cost. 

The Chairman. Well, does that imply that the major companies 
are operating more stations than they should operate? 

Mr. Crouthamel. Absolutely. 

The Chairman. Does it imply that in your opinion the major com- 
panies are competing with one another for outlets in that they build 
more and more stations, more than they need? 

Mr. Crouthamel. It is greatly overbuilt; the industry is way 

The Chairman. Well, is there any other element by which the 
divided station would reduce price to the consumer? 

Mr. Crouthamel. Not that I can think of right now. 

The Chairman. Well, that is the whole story, then, so far as you 
are concerned? 

Mr. Crouthamel. Multiplicity of stations will increase your cost. 

Mr. Shaughnessy. Mr. Crouthamel, you have been in business, you, 
say, since 1918? 

Mr. Crouthamel. That is correct. 

Mr. Shaughnessy. When were the most prosperous periods of that 
business ? 

Mr. Crouthamel. About 1920 to about 1926 is when it started lo 
move the other way a little bit. 

Mr. Shaughnessy. About how, many different brands of gasoline 
were in your station during that period^ 


Mr. Shaughnessy. How long did that brand stay in your station ? 

Mr. Crouthamel. What was that question ? 

Mr. Shaughnessy. When did you start losing branded suppliers ? 
Mr. Crouthamel. Branded suppliers were being lost, I would say, 
around about 1930. 

Mr. Shaughnessy. How many did you have in 1934 ? 

Mr. Ceouthamel. I still had the nine at 1930. 

Mr. Shaughnessy. '34? 

Mr. Crouthamel. '34? I think I had still all of the nine in '34. 

Mr. Shaughnessy. So that it is only in recent years that you have 
been losing your suppliers? 

Mr. Crouthamel. Just since the stations were leased. 

Mr. Shaughnessy. Just since the stations were leased ? 

Mr. Crouthamel. That is right. 

Mr. Shaughnessy. Up until then you were able to operate as a 
split station operator? 

Mr. Crouthamel. That is correct. 

Mr. Shaughnessy. What was your gallonage at the time that the 
stations were leased, about? 

Mr. Crouthamel. Approximately 7,000 gallons a month. 

Mr. Shaughnessy. What is it now? 

Mr. Crouthamel. Sometimes three. 

Mr. Shaughnessy. Usually a little less? 

Mr. Crouthamel. Sometimes a little less. 


Mr. Shaughnesst. And that is 3,000 gallons a month. What is 
your average dealer's margin on that 3,000 gallons ? 

Mr. Crouthamel. That is a peculiar question. 

Mr. Shaughnesst. Well, take into account all the things that 'have 
to be taken into account, if you can. 

Mr. Crouthamel. Under present merchandising in the Balti- 
more area there is no set margin, although we take the old basis, 
supposed to be 4 cents margin on the undivided, and 31/2 on the di- 
vided, above tank wagon, but that doesn't hold good because the 
majority of leased dealers have been forced in about the last year to 
to a year and a half to get quota, get gallonage, regardless of money 
or any profits, and in many cases they were forced to put out large 
discount signs — I call them circus signs, of anything from 6 for a 
dollar, 6 for 95, 6 for 98, 6 for 93, to get gallonage into that station, 
and that naturally broke down a lot of gallonage in the station that 
was getting a proper price at a fair and decent profit. 

Mr. Shaughnesst. Well, that brings up a rather interesting con- 
trast. You say that you have lost your major company suppliers 
since the stations were leased? 

Mr. Crouthamel. That is right. 

Mr. Shaughnesst. And on the other hand you say that loss has 
caused the dealers to give secret rebates or openly post group prices? 

Mr. Crouthamel. Secret first and openly posted circus signs in 
the last year or so. 

Mr. Shaughnesst. That would indicate to me a pressure on the 
iealers to abandon service stations, rather than to over-build stations. 
A dealer can't keep in business forever. 

Mr. Crouthamel. There isn't any individual dealer that can build 
a service station at the present time and operate it at a profit. Only 
service stations that have been built by the major companies, because 
.app?irently they have a subsidy which we do not have. 

Mr. Shaughnesst. You say apparent! v. Can you develop that ? 

Mr. Crouthamel. Well, I have a little in my statement — I don't 
recall just what page it is, when I speak of the pipe-line profits — on 
page 6. • 

Mr. Shaughnesst. You mean at the bottom of the page ? 

Mr. Crouthamel. First full paragraph [reading from "Exhibit 
No. 1227"] :, 

We inlght refer here to excess building of filling stations wliich Is still con- 
tinuing far beyond the saturation point, which has largely contributed to the 
cost of doing business as referred to by Mr. Beaty and again at the Cleveland 
hearings. Our contention is that this uneconomical building of filling stations 
could not have been brought about unless the major oil companies had other 
sources of revenue to draw on besides the profit in the marketing division. It is 
fairly well known that through the various integrated divisions they are pass- 
ing money derived from excessive dividends paid in their production and trans- 
portation divisions and more especially the pipe-line divisions. We would like 
to submit the statement of the Railroad Commission, of Texas in their report 
of December 31, 1933, which shows that 18 pipe-line companies operating in the 
State of Texas had a capital investment of $466,000,000; and that -for the year 
'33 they declared over $65,000,000 in dividends, and have made a profit of 19.6 
percent on the capital invested. Everyone in the oil industry will tell you that 
'33 was a "lean" year for them. 

124491 — 10— pt 16, gee. 3 8 


That is, in my opinion, where the majority of the subsidy came 
from, to build these palatial palaces, for which this investigation is 
entirely too late, because we have already got the sore spot and to 
eradicate that is quite a problem to do. 

' Mr. Shaughnessy. Well, that may be a possible basic reason, but 
are there other means of pressure that make it diflScult for even the 
major company dealer to make a profit? 

Mr. Crouthamel. Yes. 

Mr. Shaughnessy. I notice at the top of page 7 you say the dealer 
is compelled to buy various articles, uniforms, and so forth, from the 
major companies? 

Mr. Crouthamel. That is correct, aside from dealers conducting 
their own business as they see fit. 

I might, without going farther there, state that when the com- 
panies leased their stations, very often to former managers, they were 
told that the station was theirs, that they were an absolutely inde- 
pendent dealer, but it turned out that they are not. I was in a Conoco 
station just a few weeks ago when a representative of the company 
came in and picked up a report sheet. The manager of that station, 
or the lessee, has to make a complete detailed report — and that is not 
only Conoco, but practically every company — of every transaction 
that goes through that station, whether he buys the articles from the 
Continental Oil Co, or whether he buys them from some other jobber, 
he still has to make a complete report of every transaction. 

Now, if he is an independent dealer, my contention is that he does 
not need to turn in that to the major company that supplies him his 

Mr. Shaughnessy. Well, following out that, is it your experience 
that those dealers who operate leased stations have their price in any 
way controlled by the supplier? 

Mr. Crouthamel. Verbal pressure — not written. 

Mr. Shaughnessy. Where is the force behind the words? 

Mr. Crouthamel. Just before I wrote this statement! was in a 
Standard oil station with three partners as lessees. 

The main man^— I will call him manager — of the three was in tears. 
He called his wife', while I was there, on the telephone and he could 
hardly talk to her. He told her that he couldn't get home in time, 
that there was something that had come up at the station here, that it 
was very important for him to stay. The supervisor of that company 
was in the doorway at the time. Naturally, I couldn't help but over- 
hear some of the conversation. That supervisor compelled that 
lessee — in fact, he got into the supervisor's car and went down the 
street to a sign painter and had him paint a sign, "6 gallons for $1," 
to put out in front of his place, which was out in front of his place 
that night when the price to the public as advertised on the pumps 
was $1.07 at that time. That operater had to take that loss. He 
didn't want to, but he was afraid — the three of them were afraid, by 
the economic conditions which existed, that they were going to be 
thrown out of that station and could not get a job somewhere else. 
In other words, they had a job of $18 or $20 a week. 

Mr. Shaughnessy. That is what -they really had instead of a lease 

Mr. Crouthamel. They had a job, and a slaving job, at that. 


Mr. Berquist. That reduction was for the purpose of keeping up the 
gallonage ? 

Mr. Crouthamel. That is correct. The gallon reports for the State, 
which I am sorry I haven't got with me today, will indicate* that 
right directly after that pressure that was exerted at that time raised 
the Standard Oil of New Jersey's gallonage throughout the State. 

Mr. Berquist. Did all of that reduction come out of the filling- 
station operator's margin ? 

Mr. Crouthamel. Oh, yes. 

Mr. Berquist. No adjustment made, then, with the supplier at all 1 

Mr. Crouthamel. No rebates, no; in fact, recently they have in- 
creased the rents, which puts them to an additional expense. 

Mr. Berquist. In a reduction of that kind there wasn't even any 
split between the supplier and the retailer to take up that reduction in 


Mr. Crouthamel. No, sir. I might state here in answer to your 
question that the Sun Oil Co. — I was somewhat interested when Mr. 
Shaughnessy read a little of Mr. Pew's statement ^ — just about 3 
months ago, their gallonage was slipping throughout the State, maybe 
due to several reasons, I don't know, maybe taking the pumps out of 
independent dealers, maybe something else, we don't know, but the 
manager of the Baltimore area put exceptional pressure on the Sun 
Co. lease dealers, of which there are only about 16 in Baltimore city — 
there are several outside, but in the city itself — so much so that several 
of the lease dealers came to me and wanted to find out if I couldn't 
do something for them in the Philadelphia ofiice. In fact, one of 
them went as far as to pay for the telephone call for me to call the, 
Philadelphia office, and I talked to Mr. Eckert, vice president in charge 
of sales, I believe it is, and he told me that absolutely the policy of 
the Sun -Oil Co. was and is today that their gasoline cannot be sold for 
mor^ than a cent and a half above the advertised non-national brands 
or ${ny other — non-national brand for more than a cent and a half 

Mr. Berquist. Did that restrict the margin of the retail filling- 
station operator ? 

Mr. Crouthamel. The retail filling-station operator Jiad to take 
that loss. 

Mr. Berquist. How much of a loss was that ? 

Mr. Crouthamel. Ninety-three from $1.07 would be 14 cents on 
6 gallons. I asked Mr. Eckert if the Sun Oil Co. would subsidize the 
dealer to the extent that they were compelled to sell their gas, and he 
said absolutely "no"; that was the dealer's own lookout. 

Mr. Blrquist. How much margin did that leave the dealer, then? 

Mr. Crouthamel. Well, let's see; it was 13, 25; 6 from 93 would 
be — 151/^; that would be a cent— no; 2i/^ cents; but out of that they 
have got to pay an exceptionally high monthly rental, which is not 
based on a gallonage basis at the present time ; gallonage on delivery 
is what I mean. They pay, say, a rent on gallonage of a previous 
season. ^ ■ 

Mr. Berquist, Was this characteristic under the operation of the 
Iowa plan, or is this during the period of a price war ? 

* Mr. Pew's prepared statement, not numbered, was read into the record and Is included 
in Hearings, Part 14. 


Mr. Crouthamel. No; it is characteristic of the Iowa plan all 

Mr. Berquist. We heard the other day that under the Iowa plan 
the operators made more money than when they were emplo^'ed. 

Mr. Crouthamel. Well 

Mr. Berquist. The marketing experts, I think, indicated that under 
the Iowa plan the filling-station operator benefited by total net income, 
and that the oil companies benefited also for some reason or other. 
Would you say that is true? 

Mr. Crouthamel. I might say just the reverse of that. We are 
slaves. I count myself in with the dealers. We are slaves collecting 
that money that they pay to themselves as dividends, and are fools 
not to keep some of it ourselves. But the dealer himself does not 
make any money and hasn't made any money since the Iowa plan was 
put in effect. They are just barely getting wages, not even a salary. 
But they are afraid. 

Mr. Berquist. Would you say, then, that the cost of distribution 
has been decreased as a result of the Iowa plan ? 

Mr. Crouthamel. No; the cost of distribution has not. 

Mr. Berquist. But the price of gasoline has gone down under the 
the Iowa plan. 

Mr. Crouthamel. Not necessarily, sir. The tank-wagon price 
hasn't gone down. 

Mr. Berquist. I am speaking now of the price to the ultimate 

Mr. Crouthamel. Only through price wars, 

Mr. Berquist. You stated a while ago that this condition of re- 
quiring the dealer to reduce his price was more or less characteristic 
rather than 

Mr. Crouthamel (interposing) . It is characteristic. 

Mr. Berquist. And is not a price-war situation ? 

Mr. Crouthamel. It has a tendency to a price war, but it is a forced 
price war. 

Mr. Berquist. Would you summarize by saying that under the 
Iowa plan the margin for filling-station operators is less than what 
was maintained before the Iowa plan went into effect ? 

Mr. Crouthamel. Yes ; quite a bit less. 

Mr. Berquist. Why would you say the Iowa plan was put into 
effect? . 

Mr. Crouthamel. Largely to get away from chain-store taxes »t 
that time. 

Mr. Berquist. Does Maryland have a chain-store tax? 

Mr. Crouthamel. Maryland does not. They do have a chain-store 
tax, but the oil companies are exempt, 

Mr, Berquist. Well, if that is true that they don't have a chain-store 
tax, and other States do not have them as well, what would be the 
reason for these companies going over to the Iowa plan in those States 
in which there was not a chain-store tax ? 

Mr, Crouthamel. The social-security tax and the unemployment 
tax came on about the time that they l6ased them in Maryland. They 
did not lease them in Maryland when they did in Iowa, 

Mr. Berquist. A number of people have stated here that the major 
companies were losing money on marketing when they marketed them- 


selves. Would it follow that the Iowa plan was adopted to reduce 
some of those losses in marketing? 

Mr. Ckouthamel. That is possible that that may be part of the con- 
■ tributing factors. I have part of that in my statement, I believe. 

Mr. BERQmsT. When the service-station price comes down and the 
margin of the retail dealer is reduced, is the tank-wagon price to the 
dealer reduced ? 
Mr. Crouthamel. No, sir. 

Mr. Berquist. Then the effect of a price war is not felt by the major 
oil company who sells at tank wagon at the filling station. 
Mr. Crouthamel. That is correct. 

Mr. Berqitist. It would seem, then, possibly that some of the bur- 
dens of distribution have somehow been shifted to the independent 

Mr. Crouthamel. That is correct. 

Mr. Berquist. And they got the benefits in the form of higher net 
annual income. Is that right ? 
Mr. Crouthamel. Decidedly so. 
Mr, Berquist. They got higher annual income? 
Mr. Crouthamel. Decidedly so. 
Mr. Berquist. The service-station operators? 

Mr. Crouthamel. No, no ; the conapanies. The service-station oper- 
ator is going out completely. 

In line with your question, I would like to submit, Mr. Chairman, if 
I may — I think this is one of the contributing factors, too — something 
that the Shell Oil Co. puts up in all their stations, stating that the 
dealer of that particular station is absolutely independent. In my 
opinion, Mr. Chairman and members of the committee, it is nothing 
excepting an evasion of responsibility, which again reduces the cost of 
the major oil company on insurance and the like of that in case there 
should be an accident or any otherthing that the major oil company 
should carry insurance on. 
This compels the lessee to carry the insurance on the place. 
The Chairman. Do you contend that there are no bona fide lessees? 
Mr. Crouthamel. Absolutely not. They are not equitable by any 

The Chairman. Where did you get this notice that you present to 
the committee? 

Mr. Crouthamel. I asked a lessee of that particular station — ^that 
is the lessee's name signed on it — if I could take it oflF his wall. He 
said, "I expect to go out of this station anyhow. Go ahead and take 
it." I didn't steal it. 

Mr. Berquist. Mr. Crouthamel, you said that the cost of distribution 
has been reduced. Is this one of the means by which the cost of dis- 
tribution is bein^ reduced, by the reduction of margins that the lessee 
operators are privileged to enjoy? If you were enjoying a 4-cent or 
a 314-cent margin before, and for some reason or other your price was 
put down a cent, as you have indicated, at the instance of some major 
company representative, thereby reducing your margin, is that a 
metnod employed to reduce the price of gasoline ? 
Mr. Crouthamel. In the majority of cases. 

Mr. Berquist. The reduction came out of the service-station 
operator's pockets? 


Mr. Crouthamel. Absolutely. 

The Chairman. The notice may be admitted. 

(The service-station placard referred to was marked "Exhibit No. 
1228" and is included in the appendix on p. 9211.) 

Mr. Crouthamel. On page 8 there is something along that line in 
the first full paragraph [reading from "Exhibit No. 1227"] : 

Mr. John R. Sherwood, when interviewed on the pressure that they were creating 
on their dealers to reduce prices to meet competition, told us that the day of 4-cent 
(40) margins on gasoline was gone, and that the only thing we could hope for 
was to organize and fight against having it become two Cents (20) per gallon. . 
Sherwood Brothers were a local concern until several years ago, when they affli- 
ated with Richfield. Shortly thereafter Richfield was placed in the hands of 
receivers and was then purchased by court 'order by Sinclair Refining Company. 
"We have been told, on numerous occasions, by the Standard Oil Company of New 
Jersey approximately the same thing, that is, a three-cent (S0) margin on gaso- 
line would be suflScient to operate dealer stations in this area. ^--^ 

We have been told that many, many times. In other words, I really 
don't believe, as you indicated, Mr. Chairman, that therfe are any leases 
excepting siibterf u^es, to get by responsibility as I showed you on that 
card and to get by the entire cost of operation of the stations, all types 
of taxes, cleaning compounds for the driveways, as I have in the state- 
ment, even down to fancy -odored soaps, and they even have to purchase 
toilet paper from the company that supplies them with gasoline. They 
can't go out in the open market and buy any of those commodities. I; 
think it is a pretty pass when the American public has got to be 
enslaved in that manner. 

The Chairman. How many independent dealers are there now in the 
area in which your association operates? 

Mr. Crouthamel. Individually owned properties are about 20 

The Chairman. Twenty percent of the total ? 

Mr. Crouthamel. That is correct. There was about 80 percent just 
before the code days. 

The Chairman. Just before what ? 

Mr. Crouthamel. Just before the National Recovery Act. 

The Chairman. What about the actual number? How many were 
there at that time before the N. R. A., and how many are there now? 

Mr. Crouthabiel. In the city of Baltimore, that is, within the city 
of lines, we have 800-some-odd stations, that is counting every curb 
pump, automobile agency that has pumps, everything that comes under 
the bureau of weights and measures, there are 800-some — 862, I think, 
is the correct figure. Out of that there are only about 150 that are 
actually independently owned or individually owned. Amongst those 
most of them have been forced into 100 percent, or coerced, I wouldn't 
say forced, coerced into a 100-percent contract with their suppliers. 

The Chairman. One hundred and fifty? 

Mr. Crouthamel. That is right. There are very few split stations 

The Chairman. How many independent stations were there before 

Mr. Crouthamel. Right about the N. R. A. time — I had the correct 
figures of the stations from the Bureau of Weights and Measures — I 
think there were about 600 and some complete, of which I think there 
were around 100 that were company owned and operated at that time. 


The Chairman. So do you wish the committee to understand that 
there were about 500 independent stations before N. K. A, and that 
there are only about 150 now ? 

Mr. Crouthamel. That is right. 

Mr. Berquist. Who has built the new stations that have been built, 
an increase of a couple of hundred stations ? 

Mr. Crouthamel. The oil companies. In a few cases real-estate 
operators have built them, and we have one instance in Baltimore city 
where a real-estate operator builds to a certain oil company's specifica- 
tions and then leases that station afterward because this particular 
real-estate operator has quite a drag at the city hall and can get 

Mr. Berquist. Would you say that the average, then, per station is 
going up or going down ? 

Mr, Crouthamel. Just what is that question, please ? 

Mr. Berquits. The average gallonage per station. 

Mr. Crouthamel. The average gallonage per station is down. 

Mr. Berquist. Going down? 

Mr. Crouthamel. Oh, yes; decidedly so. 

Mr. Berquist. And the margin is going down ? 

Mr. Crouthamel. Decidedly so. 

Mr. Berquist. The net result if both of those are going down means 
less income for those operating. 

Mr. Crouthamel. That is right. 

Mr. Berquist. Let me ask this further question. If the income 
continues to go down, do you think there will be a number of these 
filling stations abandoned, with the result that there will be a greater 
gallonage per station and that will afford greater income per station 
operator ? 

Mr. Crouthamel. That is entirely possible, although I am not sure 
about that question. I know a lot of independently or individually 
owned must go out, I know that. 

Mr. Berquist. Is it characteristic when some goes bankrupt in oper- 
ating a filling station that the filling stations close up or does someone 
else take them over? 

Mr. Crouthamel. In some cases they close up; occasionally some- 
body else takes them over until he breaks, 

Mr. Berquist. How do you account for the fact, then, ihat the 
number of filling stations going in, being built by major companies, 
could be considered as profitable ventures? They have a lot of new 
nice filling stations going up. We have heard they cost considerable 
money. What are the prospects of those making out ? Are they the 
stations that get the big gallonage and therefore a"re profitable ? 

Mr. Crouthamel. They are not profitable. They can't be profit- 
able. A year and a half or two years ago the Gulf Refining Co. 
entered the city of Baltimore. They had not merchandised any 
gasoline as Gulf in the city because they had a contract with a large 
jobber which distributed their products. About a year and a half 
or two years ago they appropriated a million and a quarter dollars 
to build 20 filling stations in the city of Baltimore, to enter that field. 
I was rather friendly at the time with the powers that be, and I 
know that a million dollars was the cost of those 20 stations. The 
other $250,000 was used possibly for some other source. I know 


the city council was in summer recess during the time. They at that 
time handed out the permits to build filling stations. It is entirely 
possible that some of the quarter million might have been used to 
call the city council back into a special session to grant permits to 
20 new filling stations, which was not a legislative act ; the city coun- 
cil determines in which way and which manner 

The Chairman (interposing). That is a pretty broad assumption. 

Mr. Crouthamel. But they were called back and they got their 
20 permits, which cost $1,000,000. No 20 individuals could spend 
$1,000,000 on 20 filling stations and expect to do business at a profit. 
It is just impossible, ^o the money must have come from some 
other sources. We have no subsidy of that nature. 

The Chairman. Are there any other questions? 

Mr. O'CoNNELL. I should like to ask you one question. On page 
8 of your statement there is a reference to the so-called fair trade 
act in Maryland. Do I understand that fair trade act or resale 
price maintenance act does not apply to gasoline ? 

Mr. Crouthamel. It cloes not apply? 

Mr. O'CoNNELL, I am asking you whether it does. 

Mr. Crouthamel. I might state this, that the fair trade act that 
is spoken of here is the act which permits any manufacturer of a 
trade-marked article to establish a minimum resale price, but it is 
not compulsory. About 95 percent of all of the dealers in the State- 
of Maryland, except on the Eastern Shore, petitioned these various 
oil companies which supply them to invoke or use the fair trade act 
and establish a minimum resale price to do away with this tre- 
mendous price cutting so that the operator could make a profit. 
They had already put it in effect in" New Jersey under the New 
Jersey State Act, which was similar, in fact was identical to the 
Maryland law. It is an act under the Miller-Tydings Act. They 
flatly refused to use that in Maryland. 

Mr. AviLDSEN. Wliat reason did they give ? 

Mr. Crouthamel. They told us that the bill specifies that a pack- 
age or container which bears a trade-mark or label might not be 
interpreted in some court action later on as meaning a gasoline pump. 
My contention is that the container and gasoline is under the ground 
and can't be labeled or trade-marked where people can see it, but 
through its continuous piping up through the pump which dispenses 
the gasoline and out through the hose to the car the pump is trade- 
marked and it all becomes one unit through its piping and l\ose; 
therefore, if the label would be on the pump, it certainly would be 
the package or container and should be interpreted as such by the 

Mr. Aatij>sen. You say they did do this in Jersey? 

Mr. Crouthamel. In Jersey they are operating it now, and in 
greater New York, in four counties in New York they are operating 
under the same fair-trade act. In California they are operating 
under that same fair-trade act, 

Mr. AviLDSEN. The same oil companies that sell in Maryland sell 
in Jersey? 

Mr. Crouthamel. The same oil companies sell in Jersey and Mary- 
land and New York. All the Standards are Standar<l Oil Co. 


Mr. AviLDSEN. Have you ever pointed out to them that they were 
willing to do it in New Jersey and New York ? 

Mr. Crouthamel. Absolutely. 

Mr. A\iLDSEN. Wliat is the answer to that? It is the same law; 
isn't it? 

Mr. Crouthamel. Their excuse was that in New York they had had 
a similar case that had gone through the appellate court in New 
York, and therefore they used it there because a similar case had 
been through the courts. 

Mr. AviLDSEN. Why don't you fellows put a test case through the 
courts of Maryland? 

Mr. Crouthamel. There has been a case put through, but they 
won't listen to us even on that. 

Mr. AvH,DSEN. You mean the Maryland courts won't? 

Mr. Crouthamel. The Maryland court upheld that same Fair 
Trade Act as being constitutional not over — it was argued in March 
of this year, and they were possibly about a month before they 
handed down a decision. The case of Johnson-Mead Co. and the 
Goldsmith Cut Rate Stores, I believe it was. 

Mr. Shaughnesst. How did you go about petitioning the major oil 
companies on this point? 

Mr. Crouthamel. I personally did quite a lot of work. I got 
petitions similar to what a Pennsylvania outfit had, and had them 
mimeographed and took them throughout the counties and got dealers 
together and had them sign that petition. Then we took them to 
New York, to the Standard Oil Co., at 26 Broadway, and we took 
them into the various other companies in Baltimore and Philadelphia, 
wherever they had their oflBces. 

Mr. O'Connell. Do you sell Standard Oil? 

Mr. Crouthamel. No, sir. I can't, they won't sell me any. 

Mr. O'Connell. Did you go to New York to talk to the Standard 
Oil people? 

Mr. Crouthamel. That is right. I was chairman of the com- 
mittee that went there and made the arrangements to go there. 

Mr. O'Connell. As a practical matter, would it have been reason- 
able for you to expect one oil company to operate under a fair-trade 
law which would fix the minimum price unless the other major com- 
panies did the same thing? 

Mr. Crouthamel. These petitions were delivered at the same time 
to all of the oil companies. It is only natural that there is a market 
leader, or has been, in a territory, it is only natural that we should 
make a personal call on the market leader with those petitions in 
person, and the others were delivered by mail or in person to the of- 
ficers, but not a committee to wait on them. 

Mr. O'Connell. When you speak of a market leader do you mean 
a market leader for the tank-wagon price or for the retail price? 

Mr. Crouthamel. I think that includes both. 

Mr. O'Connell. I was under the impression that the tank-wagon 
price was the price at which gasoline was sold to dealers. 

Mr. Crouthamel. That is correct. 
. Mr. O'Connell. And the retail price, I would think, would be the 
price at which the dealer sold to the consumers. Is there a market 
leader in both of those price ranges? 


Mr. Crouthamel. Well, the market leader that I speak of is the 
company. Now^ through the pressure that they create on the dealer 
to sell at certain prices, they practically set the retail price. 

Mr. O'CoNNELL. Well, the tank-wagon price, I take it, is at any 
given moment pretty stable 

Mr. Crouthamel. That is correct. 

Mr. O'CoNKELL. And in that particular area there is ordinarily a 
market leader, a large company which will post a price which is ordi- 
narily met by the other companies, 

Mr. Crouthamel. That is right In our territory it is usually 
known as Standard of New Jersey. 

Mr. O'CoNNELL. Does that situation prevail in the retail price 
field? Is there a price leader in the retail field to the same extent as 
there is in the jobbing field? 

Mr. Crouthamel. Well, some refer to it as holding an umbrella. 
For instance, in our area the Standard of Indiana, which is the 
American Oil Co., retained their own outlets, didn't lease any. 

The Chairman. Testimony here is that the American Oil Co. is a 
subsidiary of the Pan-Am, which, in turn, is a subsidiary of Standard 
of Indiana. 

Mr. Crouthamel. That is correct, and they then established a re- 
tail price which we have to follow if we want to sell anybody. Then, 
on the other hand, each major oil company that had operations of 
their own retained a key station, they call it, and they establish the 
price in that key station. For instance, the Standard of New Jersey 
has one at twentieth and Charles Street in Baltimore. Just a day or 
two ago, a lessee who had been manager of a Shell station within 
about a mile of my place called me up and wanted to know if I knew ■ 
where he could get a station. I said, "Listen, what is the matter with 
your station up there?" 

He said, "The Shell Oil Co. is taking my station back and goin^ to 
create a key station." Now the Sun Oil Co. is doing the same thing 
right now. So, naturally, they establish the retail price in those key 
stations. Before that it was by coercion. 

Mr. O'CoNNELL. Let me see if I understand you. By a key station 
you mean what would in effect be the market leader for the retail 
price for the retailers selling the gas of that particular company. 
That is right? 

Mr. Crouthamel. I don't get that question altogether. 

Mr. O'ConneLl. You suggest that the major companies, at least in 
Baltimore, have a practice of keeping what you call a key station, a 
retail outlet? 

Mr. Crouthamel. That is correct. 

Mr. O'Connell. We were discussing price leaders. Do I under- 
stand that the price posted at a key station is the price at which their 
other outlets are expected to retail gasoline? 

Mr. Crouthamel. As a general rule. 

Mr. Berquist. Have those key stations led in any price cuts ? 

Mr. Crouthamel. Not to my knowledge. They are simultaneous 
in most cases, so it is hard to say just w^hether they are leading or 
whether the dealer himself was leading. 

The Chairman. Have you completed your statement ? 


Mr. Crouthamel. I think so, excepting I want to refer to something 
here that was referred to that I overheard about the tire stations. 
Those tire stations in any city where they operate, such as Goodyear 
or Firestone, operate their company stores and are all split stations. 
They operate, practically all of them, at a loss, and the reason they 
are split stations is because the various oil companies have national 
accounts whereby they furnish tires to their own stations, to their 
own leased stations; therefore, I will say Sinclair, who sell Goodyear 
tires, which I have in the statement there, naturally the Goodyear 
service store in Baltimore would handle Sinclair products. Sher- 
wood Bros, handle Goodyear; naturally, they would handle Sher- 
wood's products, and so on. That is the reason for those tire stores 
having a split station, or divided station. 

I have no suggestions and no remedy, because every time that we 
are asked or approached for a remedy, we don't know of any because 
the retailing of gasoline is rather peculiar. We are told that it is 
entirely intrastate because of the case of the United States Govern- 
ment and H. L. Miles, in the United States District Court of Balti- 
more, where there was handed down a decision that when the product 
comes into the State of Maryland, and is then reparceled, it becomes 
purely intrastate from there on. 

I just want to give you this point, if I may. In my mind it has 
always been a question where intrastate and interstate begins and 

The Chairman. It has been a question in a good many minds for 
a good many years. 

Mr. Crouthamel. I will tell you why I say that. These particular 
major oil companies — I am not belligerent to them whatsoever; all 
I want to is to make a living; but as far as their distribution is con- 
cerned — for instance, from their bulk terminals where it is deposited 
from cargo, on to Maryland soil, and is then reparceled from there on, 
they claim it is intrastate. The Robinson-Patman Act and other 
various antitrust acts do not apply. But since the wage-and-hour 
bill has come in, their employees in the offices which do the business 
transactions between New York and Baltimore and Philadelphia, 
New York, and Norfolk, or wherever it may be, they come under the 
Wage and Hour Act. 

Now, if that is interstate, I believe the movement of the product 
borders very near to interstate, and therefore the Robinson-Patman 
and some of your other antitrust acts, should cover, and I think you 
have ample laws to cope with, although there is a lot of time con- 
sumed in investigations and what not. I think there should be, at 
some time or other, a legislative interpretation of where interstate 
and intrastate begins and ends, that we might know. We don't pro- 
duce any oil in Maryland. 

The Chairman. Well, thank you very much, Mr. Crouthamel. The 
committee is indebted to you for your statement. 

Mr. Crouthamel. It is a pleasure to have been here. 

Mr. Snyder. I offer for the record the brief of the National Pe- 
troleum Retailers' Association. 

The Chairman. Without objection, it may be accepted. 


(The brief referred to was marked "Exhibit No. 1229" and appears 
in the appendix on p. 9211.) 

The Chairman. You desired to have it printed, did you ? 

Mr. Snyder. Yes. 

The Chairman. The committee tomorrow will hear Mr. George B. 
Ingram, of Canton, Ohio, There are one or two other witnesses, Mr. 
Hartley, Mr. Hewett, Mr. Farish, and Mr. Anderson. The commit- 
tee will stand in recess until 10 : 15 tomorrow morning. 

(Whereupon at 4 : 50 p. m. a recess was taken until the following 
morning at 10 : 15. ) 



United States Senate, 
Temporary National Economic Committee, 

Washington^ D. C. 

The committee met at 10 : 25 a. m., pursuant to adjournment on 
Tuesday, October 10, 1939, in the Caucus Koom, Senate Office Build- 
ing, Kepresentative Clyde Williams presiding. 

Present : Representative Williams (acting chairman); Messrs. 
Henderson, Lubin, O'Connell, and Brackett. 

Present also: Clarence Avildsen, representing the Department of 
Commerce; Quinn Shaughnessy, representing the Securities and 
Exchange Commission; Representative Mapes ^Michigan); Hugh 
Cox, W. B. Watson Snyder, F. E. Berquist, Christopher Del Sesto, 
Special Assistants to the Attorney General ; Leo Finn and Roy Cook, 
Department of Justice. 

Acting Chairman Williams. The committee will come to order, 


Acting Chairman Williams. Do you solemnly swear that the tes- 
timony you are about to give in the matter now pending will be the 
truth, the whole truth, and nothing but the truth, so help you God? 

Mr. Ingram. Yes, sir. 

Acting Chairman Williams. Give your name, experience, and con- 
nections to the committee. 

Mr. Ingraisi. My name is G. B. Ingram. I am president of the 
New Deal Oil Co., located at Canton, Ohio. We are a corporation 
under the Ohio laws, incorporated in 1933, $20,000. 

Acting Chairman Williams. How long have you been in the oil 
business? ' . 

Mr. Ingram. Over 25 years. 

Acting Chairman Williams. ■ Where ? 

Mr. Ingram. In various parts of the country. 

Acting Chairman Williams. In what capacity? 

Mr. Ingram. Well, from laying staves in a refinety in the early 
days to sales work, finally in the iDusiness for myself. I started with 
Waverly Oil, later migrated from Waverly into the brokerage busi- 
ness, later with Armstrong, Fred G. Clark, Cities Service of Boston, 
Pennsylvania of Warren, and various other companies. 



Acting Chairman Welliams. Have you a prepared statement? 

Mr. Ingram. Yes, sir. 

Acting Chairman Whxiams. It has been filed, has it, with the 
committee ? 

Mr. Ingram. Yes, sir. 

Acting Chairman Williams. And you now offer it for the record. 

Mr. Ingram. Yes, sir. 

(The statement referred to was marked "Exhibit No. 1230," and is 
included in the appendix on p. 9219.) 

Acting Chairman Williams. You may proceed to give the high 
points of that statement in your own way. 


Mr. Ingram. The New Deal Oil Co. is a small company. We oper- 
ate a few stations and do a very small jobbing business, some broker- 
age business. 

I am going to go right- into the exhibits that I have here, and 
present them to the best of my ability. 

I am goin^ to offer, first, as exhibit A, a contract between the Penn- 
zoil Co. and myself, dated October 26, 1934.^ This contract covers' 
my requirements of gasoline and lubricating oils. It is for 1 year, 
beginning on October 26, 1934, and ending on October 25, 1935, 
unless canceled for cause by either party as herein provided, and as 
automatically renewed thereafter for yearly periods. The contract 
may be canceled by either buyer or seller, delivered in writing, de- 
livered to the other party's main office not less than 30 days prior to 
any expiration. 

I am going to drop down, then, to a paragraph marked "Prices: 
Pennzip." [Reading from "Exhibit No. 1231":] 

Price on Pennzip Gasoline to be that published in Piatt's Oil-o-gram on date 
of each shipment, as quoted by the Standard Oil Company of Ohio, for 65 
Octane gasoline in tank cars, with freight allowed to Ohio destination. It 
being further agreed that if such price does not allow -a. margin of six (6^) 
cents under the state-wide retail price for X70 gasoline, as posted by the Stand- 
ard Oil Company of Ohio, the Buyer is to be billed at a price which will give 
such margin. 

I offer this to show that my price is based on the price as set by 
Standard Oil, and that they have, together, agreed on the price that 
the merchandise shall be sold to me for. 

I am going to drop, then, down to another paragraph, which says 
"Point of Delivery." [Reading further from "Exhibit No. 1231":] 

Oil City, Pennsylvania, in tank cars, freight allowed to Canton, Ohio. 

Regardless of any reduction in freight rate that might take place, 
or otherwise, I get no benefit. 
"Prices on other products" is another paragraph : 

In consideration of the benefits accruing to the Buyer as a distributor of 
Pennzoil branded products, Buyer states his willingness to purchase from the 
Seller his entire requirements of gasoline and kerosene. Prices on other than 
branded products to be the low of Piatt's Oil-o-gram for Western Pennsyl- 
vania on date of shipment. * * ♦ 

1 Admitted for the record, infra, p. 8953, as "Exhibit No. 1231." 


Then I am going to read another paragraph marked No. 14 : 

This contract is to run concurrently with a lubricating oil contract made 
between the Seller and Buyer, of even date. If Buyer at any time discon- 
tinues the handling of Seller's brands of lubricating oil, through its several 
stations, then this contract may be canceled at the option of the Seller. 

I offer this original contract, and I request that it be given back 
to me as evidence. 

Acting Chairman Williams. Mr. Snyder, have you examined these 

Mr. Snyder. Yes; Mr. Ingram is a party to the contracts and 
received the letters. 

Mr. Ingram. I beg your pardon, I would like to read the letter 
that came attached to the contract. 

Supplementing this contract, we agree that in the event of a depressed price 
condition in the State of Ohio, or in the City of Canton, as posted by the 
Standard Oil Company of Ohio that based on the, present retail price of 17^, 
your margin will be reduced one-half of such reductions until it reaches 
5^. * * * 

Mr. Cox. Is this the original contract ? 

Mr. Ingram. Yes, sir ; it is my copy of it. 

Mr. Cox. And that is your signature at the end ? 

Mr. Ingram. That is my signature ; yes, sir. 
' Mr. Cox. I suggest that there seems to be no question as to the 

Acting Chairman Williams. It may be received in evidence. 

(The contract and letter referred to were marked "Exhibit No. 1231" 
and are included in the appendix on p. 9221.) 

Mr. Chantland. I believe the witness asked that it be returned to 
him. Could a photostat be put in the. record so that he has his original ? 

Acting Chairman Williams. It will be copied. 

Proceed, Mr. Ingram. 

Mr. Ingram. I offer as evidence my exhibit B. This letter is dated 
March 25, 1938, from the Pennzoil Oil Co. It is headed "Distributors 
in Ohio." This letter is more of a threatening nature, inasmuch as it 
threatens me if I pass on any of my margin. I will read the letter : 

Effective March 21st, 1935, and until further notice, we are increasing the 
margin on Pennzip and Pennzip Ethyl Gasoline to our distributors in Ohio to 60 
off the retaU price for the State of Ohio as jwsted by the Standard Oil Company 
of Ohio. 

The recent retail price advance affords us an opportunity to pass along this 
additional margin to our distributors. Under no consideration must any. of this 
increase be given to dealers. The dealer structure remains the same, and if we 
receive any evidence that this increase is being passed along and dealer margins 
are increased, we may have to recall the additional margin to the distributor. 

This margin is being given with full realization that it is difficult for the 
distributor to operate on the present spread, and we sincerely hope and trust that 
it will be permaneiit. We cannot give any assurance that it will be. 

May I comment a little on this ? 

Acting Chairman Williams. By whom is that signed ? 

Mr. Ingram. W. R. Birkmayr, manager of the gasoline division of 
the Pennzoil Co! 

Acting Chairman Williams. That was received by you through the 

Mr. Ingram. Yes, sir. 


Acting Chairman Williams. In the regular course ? 

Mr. Ingram. Yes, sir. 

Acting Chairman Williams. Proceed. 

Mr. Ingram. May I comment? 

Acting Chairman Williams. Yes. 

Mr. Ingram. If in March of 1935 the distributor was allowed a 
6-cent margin below the retail price of the Standard Oil Co. of Ohio, 
at this present date he is only getting a margin in Canton — our price 
today is 15 cents; it is 2i/^ cents oft to the dealer and 1^ off to the 

I will have to figure that. He is only getting a 4-cent margin. 

Mr. AviLDSEN. Mr. Ingram, back in '34, there, where you had a 
margin of 6 cents, did you give some of that to the dealer? Did you 
today is 15 cents; it is 2i/^ cents off to the leader and 1^/2 off to the 
dealer ? 

Mr. Ingram. Did I make a gross profit? No, sir; the margin to 
the dealer at that time, if I recall correctly, was 3^^ cents, but I both 
operate wholesale and retail. 

Mr. AviLDSEN. They meant, then, that you should not give the 
dealers more< than 3V^ cents when they said you shouldn't give any, 
of this additional margin away. 

Mr. Ingram. If that was the margin at the time ; yes, sir. I don't 
remember exactly the margin. 

I would like to submit this letter. 

Acting Chairman Williams. It may be received. 

(The lette) referred to was marked "Exhibit No. 1232," and is 
included in t le appendix on p. 9223.) 

Mr. Ingram. It will be a matter of public record, I imagine. 

Acting Chairman Williams. It will be a matter of record if it 
goes into this record. 

Mr. Ingram. I am submitting a letter as exhibit C of the Penn- 
zoil Co., dated September 17, 1935, addressed to the New Deal Oil 
Co., attention Mr. L. E. Ingram. They seem to have the initials 
wrong. "L. E." are my wife's initials instead of mine. 

Reply to your letter of September 5th regarding your contract which expires 
October 25, 1935, was delayed due to my absence from the city. 

Your present contract automatically renews itself unless cancelled at least 
thirty days before its expiration date. 

As far as we know now we do not expect to make any changes in distributor 
contracts in Ohio. We are, therefore, not submitting any new contracts at this 

I will comment later. I would like to submit that for the record. 

Acting Chairman Williams. It may be admitted. 

(The letter referred to was marked "Exhibit No. 1233," and is 
included in the appendix on p. 9224.) 

Mr. Ingram. Exhibit D, a letter dated September 23, 1935, 
addressed to the New Deal Oil (reading) : 

Supplementing our letter of September 17th, we wish to advise you that we 
are not making any change in your present contract, which automatically 
renews itself on October 25th. 

We trust that we will have the pleasure of serving you this year as we have 
in the past, and that our relations will continue to be pleasant. 


That is signed by W. R. Birkmayr, manager, gasoline division, 
Pennzoil Co, I would like to submit that, and I would like to com- 
ment on it. 

Acting Chairman Wiixiams. It may be admitted. 

(The letter referred to was marked "Exhibit 1234" and is included 
in the appendix on p. 9224.) 

Mr. Ingram. The contract which I submitted to you as exhibit A^ 
was one that was made in the early days of the code, but if I am cor- 
rect the code expired sometime in the early part of 1935 or was declared 
unconstitutional, but this contract takes effect as of October 1935 and 
runs through to 1936. It still contains in it that the prices are based 
upon the Standard Oil Co. of Ohio's price, and what I want to bring 
out there — ^which I can at this time, I guess — is that they didn't know 
the Madison cases or trials were going to start when they renewed that 
contract. Very shortly thereafter they did find it out. 

I want to submit as evidence my Exhibit E, from the Pennzoil Co., 
a letter, and attached to this letter I have a contract which is a con- 
tract dated October 25, 1936, and it is the contract I am still operating 
under. It shows some of the changes that took place in this after the 
Madison grand jury started. 

Our gasoline contract with you expires on October 25, 1936. 

Mr. Henderson. Is this the letter ? 

Mr. Ingram. Yes, sir. 

Mr. Henderson. Accompanying the contract? . 

Mr. Ingram. Yes, sir. 

Mr. Henderson. Will you read the date, to whom it is addressed, and 
by whom signed ? 

Mr. Ingram. September 14, 1936; addressed to the New Deal Oil 
Co., Canton, Ohio ; signed, W. R. Birkmayr, manager, gasoline division. 

Our gasoline contract with you expires on October 25, 1936. This contract has 
an automatic renewal clause which provides that it shall continue from year to 
year unless either party notifies the other party in writing at least 30 days prior 
to the expiration date, or any yearly extension thereof. 

As our present form of contract is rather antiquated, it is our intention to 
submit to you a new type of contract, which will be effective as of the expiration 
date of your present contract. This is notice that we are cancelling your r-ontract 
with us for gasoline in its present form at its first expiration date. • 

You probably realize the necessity of having a new form of contract as weU 
as we do, so ho further explanation is necessary. A new contract wiU be sub- 
m;itted to you within a reasonable time before the expiration date of your present 

Now, I have my contract here. Contract between the Pennzoil Co. 
and the New Deal Oil Co.. Canton, Ohio. The term of the contract is 
October 26, 1936, and endmg on October 25, 1937— 

and unless cancelled for cause or by either party as hereinafter provided is auto- 
matically renewed thereafter for yearly periods. This contract may be cancelled 
by either Buyer or Seller, giving notice in writing delivered to the other party's 
main office not less than thirty days prior to any expiration date. 

I want to show you here a change that took place in this contract 
over the other one. 

Prices on Pennzip and Pennzip Ethyl — 

1 "Exhibit No. 1231," appendix, p. 9221. 
124491 — 40— pt. 16, sec. 3 9 


This paragraph I will explain later- 
Prices on Pennzip and Pennzip Ethyi, Gasoline delivered hereunder shall be 
two (2^) less than the seller's posted tank-wagon price to undivided dealers, as 
posted in its office in Oil City, Pennsylvania, for the state of Ohio. 

They eliminated the Standard Oil Co. from that paragraph in this 
new contract. 

The next paragraph that I want to call your attention to is Point 
of Delivery: 

Oil City, Pennsylvania, in tank cars, freight allowed to Canton, Ohio. 

I want to call your attention to another paragraph which says : 

Prices on other products. In consideration of the benefits accruing to the 
Buyer as a distributor of Pennzoil branded products. Buyer states his willing- 
ness to purchase from the Seller his entire requirements of gasoline and kero- 
sene. Prices on other than branded products to be the low of Piatt's Oilgram 
for "Western Pennsylvania other districts" on date of shipment, f. o. b. Oil City, 

I want to refer you to the paragraph marked 13 in here. 

This contract is to run concurrently with a lubricating oil contract made 
between the Seller and Buyer, of even date. If Buyer at any time discontinues 
for any reason the handling of Seller's brands of lubricating oil, through its 
several stations, then this contract may be cancelled at the option of the Seller. 

Acting Chairman Williams. In a word what is the difference be- 
tween that contract and the other one? 

Mr. Ingram. This contract here puts my margin on the basis of 
the tank wagon. It has eliminated from it entirely the service- 
station basis ; it has eliminated from it the Standard Oil Co. of Ohio's 
posted price and set up the price at their refinery. The difference in 
this contract — I would like a lot better to be operating on the old 
contract than this one, because I would at least be getting more money 
than I am getting now. 

Mr. Cox. Is this the contract you are operating under today ? 

Mr. Ingram. Yes, sir. 

Mr. Henderson. To emphasize its significance before you intro- 
duced it, you seemed to tie it up with the beginning of the Madison 
suits. Is that just an impression of yours or do you think the change 
actually came about due to the starting of that case? Have you any 
evidence of that? 

Mr. Ingram. Well, as for authentic evidence, no ; I have not. 

Mr, Henderson. You had no discussions with officers of your sup- 
plying company, Pennzoil^ that would indicate 

Mr. Ingram (interposing). Do you mean verbal discussions? 

Mr. Henderson. Well, on direct testimony from them, was there 
any indication that it was due to the questions raised in the ^adison 

Mr. Ingram. Well- 

Mr. Henderson (interposing). I am trying to determine why you tie 
the two up. They indicate to you in that letter that you know you 
ought to have a different contract and they do, too, so they are send- 
ing one along. There is nothing said about the Madison case or any 
of the reasons. 

Mr. Ingram. They indicated I needed a new contract. I didn't 
ask for a new one. They gave it to me and I had the option of ac- 
cepting it as it was. Their statement at the time, at which the price 


was set up and so forth, was contrary to law, and they would have 
to make a change. 

Mr. Henderson. Now, let me get that straight. You had conver- 
sations with officers or representatives 

Mr. Ingram (interposing). Representatives, that's it. 

Mr. Henderson. Of Pennzoil, and they indicated they could no 
longer use tne Standard Oil published price as a basis for the price 
to you, because of the Madison case? 

Mr. Ingram. Yes, sir. They are still following that price; we 
never deviate. We change when Standard does. 

Mr. Henderson. I am just trying to get explicit what I sense from 
your testimony, and you say to me that actually representatives of the 
company — now, what representatives of the company? 

Mr. Ingram. Well, there are three or four calling on me. 

Mr. Henderson. I am asking what representative on this particu 
lar reason for the change? 

Mr. Ingram. That I couldn't tell you. I don't remember exactly. 
I think all of them that called me at the particular time. 

Mr. Henderson. What would they say? 

Mr. Ingram. Well, they would say, "Well, here we are in one devil 
of a mess u]) here in Madison. They are showing this thing up 
where the price is arranged and trying to make it look like a case 
of monopoly, and we have got to change our form of contract. You 
won't suffer by it. We will go along on the same basis. The price 
will be based on Standard's, but it won't be in the contract on that 

Mr. Henderson. Was that said to you more than once? 

Mr. Ingram. I imagine it was. 

Mr. Henderson, I don't want imagination. This is a fairly seri- 
ous matter you are presenting. I don't want any imagination on it. 
I ask you the direct question • Was what you have indicated as the 
natiire of a conversation wicii a representative of Pennzoil concerning 
the reason for the change said to you more than once ? 

Mr. Ingram, I would say yes. 

Mr. Henderson. And that was your understanding as to the reason 
for the change in that contract? 

Mr, Ingram. Yes, sir. 

Mr. Henderson. There had been no change in your business that 
required a change in your contract? 

Mr. Ingram. No change in my business; no, sir. 

Acting Chairman Williams. As a matter of fact, as I understand 
you, the policy was not changed.' Is that right? It was simply a 
change in the words of the contract, but you continued under the 
old system just the same. 

Mr. Ingram. Yes, sir; you are correct. 

Mr, Berquist, May I ask, in that first contract you were allowed 
6 cents off of service-station price. 

Mr. Ingram, Yes, sir, 

Mr. Berquist. If the service-station price went off, you still re- 
tained your 6-cent margin. You were safe in your 6-cent margin. 
Then, when you switched to the other type of contract, which was 2 
cents off tank wagon, supposing then the retail market went off. 
Were you protected in your margin, or would you have to split some 
of-that loss with the retail dealers with whom you sold? 


Mr. Ingkam. Well, paragraph 12 says [reading from "Exhibit No. 
1235"] : 

The Buyer agrees to maintain the resale price schedule established by the 
Seller from time to time for branded and/or trade-marked products, and to 
incorjwrate a similar requirement in any contracts buyer may make with a 
purchaser for resale. 

Mr. Henderson. To whom does that refer? What are you reading 
from ? 
Mr. Ingram. The contract. 
Mr. Henderson. Which contract? 
Mr. Ingram. Pennzoil contract. 
Mr. Henderson. The old contract? 
Mr. Ingram. No, sir; October 26, 1936.^ 
Mr. Henderson. Bead that again, please. 
Mr. Ingram (reading) : 

The Buyer agrees to maintain the resale price schedule established by the 
Seller from time to time for branded and/or trade-marked products, and to 
incorporate a similar requirement in any contracts Buyer may make with a 
purchaser for resale. The Buyer further agrees that he will, during the life 
of this agreement, adhere to and strictly observe all of the general marketing 
policies of the Seller. 

Mr. Henderson. What does that mean in terms of your resale price ? 
Do you follow that? 

Mr. Ingram. Do you follow what? 

Mr. Henderson. Do you conform to paragraph 12 ? 

Mr. Ingram. Yes. I get the resale price, but I do give premiums. 

Mr. Henderson. In other words, does Pennzoil have a resale price 
for the products you buy from them ? 

Mr. Ingram. They send me bulletins and tell me what I have to 
sell at 

Mr. Henderson. And you follow them, except for the giving of 
premiums ? 

Mr. Ingram. That's it. 

Mr. Henderson. Do you regard that as conformance with the spirit 
of your contract? 

Mr. INGR.A.M. Dcf I regard that in conformance? It is my business. 
I ought to be allowed to advertise as I so see fit. The others do. 
It is only a method of advertising, sir. 

\Mr, Henderson. But if you give a premium, it is a varying of the 
price. * 

Mr. Ingram. I disagree with you. 

Mr. A\t:ldsen. .What is the premium? What do you mean by the 

Mr. Ingram. I give a coupon with each dollar purchase, and when 
they get so many coupons I give them a premium, one of any one 
of maybe 250 items. . 

Mr. AviLDSEN. What are some of them, for example ? 

Mr. Ingram. For example, a Toastmaster. 

Mr. Henderson. You don't agree that that is a change in the net 
price to the buyer? 

Mr. Ingram. I do not. Lowell Thomas doesn't. 

Mr. Henderson. I don't now that Lowell Thomas is an authority 
on this particular item. What I want to get 

1 "Exhibit No. 1235," appendix, p. 9224. 


Mr. Ingram (interposing). I set up a gallonage basis of adver- 
rising, the same as the major companies do. They figure they wilj 
spend so much for advertising. That is all I do, sir. 
Mr. Henderson. I want to get this straight. 

Mr. Ingram. My advertising cost is approximately one-half cent 
per gallon. 

Mr. Henderson. How many gallons of gas would you have to buy 
in order to get a Toastmaster? 
Mr. Ingram. Mister, it isn't by gallons, it is by dollar purchases. 
Mr. Henderson. How many dollars,' then? 
Mr. Ingram. $150 worth. 

Mr. Henderson. So for $150 worth of gasoline, sold at the resale 
price stated by Pennzoil, you get the gasoline plus a Toastmaster. 
In your mind — understand I am not trying to make any invidious 
comparison on this; I want to get your feelmg about this. You get 
$150 worth of gasoline, at resale price, plus something else, and you 
don't think that reduces the net cost of your gasoline? 

Mr. Ingram. May I ask this question ? If I am wrong, correct 
me. Am I not allowed to do advertising myself? 

Mr. Henderson. I am not questioning whether you are allowed to 
do advertising. You have a chip on your shoulder on this question. 
All I am trying to get is a simple answer to a question. If you 
want to say No, I do not regard it as a reduction in price," that is 
all rights That would be your answer. 

Mr. Ingram. I do not regard it as a reduction in price. I regard 
it as a legitimate method or advertising. 

Mr. Avildsen. Mr. Ingram, how much is this Toastmaster worth 
at retail? 

Mr. Ingijam. The retail price of it is, I think, $22.75. 
Mr. Henderson. I pass, Mr. Chairman. 

Mr. Avildsen. You give a man a Toastmaster worth $22.75 if he 
buys $150 worth of gasoline? 
Mr. Ingram. It doesn't cost me that. 
Mr. Avildsen. Wliat does it cost you ? 

Mr. Ingram. I don't think I should divulge those secrets. Those 
are business secrets that I shouldn't divulge. 
Mr. Avildsen. If you don't wish to tell us, that is air right. 
Mr. Berquist. May I ask if the second contract is a contract which 
arises under the Iowa plan? 

Mr. Ingram. We, in Ohio, as I understand it, have no Iowa plan, 
yet they tell us it is the same as the Iowa plan, 

Mr. Berquist. You don't have any chain-store tax, but it is similar 
to the Iowa-plan contract? 

Mr. Ingram. Yes, sir; as I have taken it from the trade journals, 
it is. 

Mr. Berquist. Then, if the retail price is reduced — say the retail 
price falls off a cent, who bears the burden of that decline, the oil- 
company supplier or the retailer or the jobber? 
Mr. Ingram. I took a portion of it. 
Mr. Berquist. And who takes the other portion? 
Mr. Ingram. That depends entirely on the basis that they work it 
on. Sometimes — the last advance of half a cent, which took place on 
Saturday, the dealer did not get any benefit of that at all. But I 


understand that I got a benefit, I think, of a quarter of a cent on my 

Mr. Berquist. The dealer didn't get any benefit of the increase? 

JMr. Ingram. That's it. 

Mr. Berquist. When it was decreased, was his margin decreased? 

Mr. Ingram. Yes, sir. That was in Canton. I doirt know about 
the rest of the State. 

Mr. Berquist. As an Iowa-plan dealer, then, he does assume a good 
bit of the risks of retail marketing under that system. 

Mr, Ingram. I would say he did. 

Mr. Berquist. Now before, under the old contract, if the price 
went down you still got a 6-cent margin to cover yourself on the 

Mr. Ingram. To a certain point in there. It had a stop clause 
f . o. b. the factory. I think it had a stop clause of 6 cents in it, or 5 
cents, whatever it was. 

Mr. Berquist. What would you say if the price declined 1 cent. 
Would that have been in part or totally borne by the refiner-supplier? 

Mr. Ingram. Based on the State market, it was. If it was based 
on the local-market structure, we took half of it. 

Mr. O'Connell. Does Ohio have a resale price maintenance law, do 
you know? 

^Ir. Ingram. No, sir. 

Mr. Henderson. I think the witness is incorrect in that. I think 
Ohio has a general resale price-maintenance law, a fair-trade law, 
does it not ? 

Mr. Inopam. Tliat I can't tell you, sir. I don't know that. 

Mr. Henderson. I am quite sure that some grocery products — 
branded grocery products — are sold under fair-trade laws, 

Mr. Cox. Do you sell any unbranded gasoline? 

Mr. Ingram. Yes, sir. 

Mr. Cox. Of course as to that you don't have to maintain any retail 
price fixed by Pennzoil Co. 

Mr. Ingram. No, sir. 

Mr. Cox. You net it from Pennzoil? 

Mr. Ingram. Yes, sir. 

M' . AviLDSEN. Has the Pennzoil Co. ever objected to your giving 
away these premiums? 

Mr. Ingram. Gentlemen, that is kind of a funny question. Instead 
of objecting they have come in to see what my plan was and put it in 
operatJoH at othei places. 

Mr. A\^LDSEN, Then there is no effort on their part to control the 
resale price, 

Mr. Ingram, They figure it is a method of advertising, 

Mr. A\iLD3EN. How many of your customers turn back these 
coupons for merchandies, what percentage? 

Mr. Ingram. That I can't tell you ; I haven't kept a record of it. 

Acting Chairman W^illiams. This may be admitted. 
(The contract and letter referred to were marked "Exhibit No. 
1235" and are included in the appendix, on page 9224.) 

Acting Chairman Williams. Proceed, Mr. Ingram. 

Mr. Ingram. I offer exhibit F, which is numerous bulletins of 
price changes. There is one dated January 18, 1937, from the Penn- 


zoil Oil Co., and signed by W. K. Birkmayr. [Reading from "Exhibit 
No. 1236":] 

Gentlemejn : Effective February 6, 1937, the price on gasoline in Ohio was 
advanced one-half cent per gallon. Your margin on Pennzip gasoline effec- 
tive as of the same date is hereby increased from 2 to 2^4 cents below the 
undivided dealer price of such gasoline, or a margin to you at the present time 
of 5% cents. The new tank-wagon prices are as follows : Consumer tank wagon, 
Pennzip gasoline, 17 cents ; undivided dealers, 14% cents ; divided dealers, 16 

Your prices effective February 6, 1937 on this depressed market will be 8^4 
cents on Pennzip gasoline, 9% cents on Pennzip Ethyl gasoline, and 8 cents on 
65-octane gasoline, delivered, exclusive of taxes. 

We are very glad that advancing prices have given us an opportunity to 
restore part of the margin that was taken from you when the price in your area 
dropped below the State-wide structure. 

This price is effective until further notice. 

The letter is signed by Pennzoil Oil Co., W. R. Birkmayr. 

You will note that they refer to nothing in there but tank wagon, 
but in the top paragraph they do set a resale value because they say 
at the present time my margin is 3% cents, and the only way I could 
make 5% cents would be off the retail price and not the tank wagon. 

Mr. Hendekson. Whose retail price? 

Mr. Ingram. The retail price in the city of Canton. 

Mr. Henderson. Who sets that price ? 

Mr. Ingram. Who sets the price in Canton ? I would say the Stand- 
ard Oil Co. of Ohio. 

Mr. Henderson. Was that what the letter refers to ? 

Mr. Ingram. In our area it dropped below the State-wide structure. 
It does not say Standard, but you ask me who sets the price, and I 
say Standard sets it. 

Mr, Henderson. They expected you to compute your 5% cents on 
the basis 

Mr. Ingram (interposing). Of Standard's price. 

Mr. Henderson. And not on the tank-wagon price? 

Mr. Ingram. That is what the 5% cents would be. If I made 5% 
cents on tank wagon, I wouldn't have to be in the oil business long. 

Mr. AviLDSEN. Mr. Ingram, how much of the gasoline you buy is 
sold at retail, and how much is sold to other dealers ; ajpproximately ? 

Mr. Ingram. Frankly, at the present time I haven t got an out- 
side dealer, except one, and that outside dealer happens to be my wife. 
She operates a station. , 

The reason for that is this. I can't afford to put in visible pumps — 
or rather computing pumps, build driveways and air compressors and 
so forth on a half a cent or a cent and a half, or whatever it might be, 
and it has been as low as a half a cent to the jobber. 

Mr. AviLDSEN. Are you making money now on your retail business ? 

Mr. Ingram. I am not. 

Mr. AviLDSEN. Are you breaking even ? 

Mr. Ingram. I would say that since the first of the year that is all 
I have been doing — without making any interest on my investment. 

Acting Chairman Williams. All right, proceed. Do you offer that 
letter for the record ? 

Mr. Ingram. That is one of them. I have several of them that will 
go with this. 

(The memorandum referred to was marked "Exhibit No. 1236," and 
is included in the appendix, on p. 9227.) 


Acting Chairman Williams. That is a letter addressed to you and 
signed by the Pennzoil Co ? 
Mr. Ingram. That is right; dated February 16. 
I will mark this exhibit F-2, June 12, 1933 : 

Branch Managers and Distributors, Ohio, from R. A. Browne, Ohio Marketing 

Effective Wednesday morning, June 14, 1933, and until further advised. The 
Pennzoil Co. will put the following marketing policies into effect. It is ex- 
pected that all branch managers and distributors will adhere absolutely to the 
program as here set forth and see that their dealers do the same. 

The posted service-station price for Pennzip Gasoline will be 17%(i* per 
gallon; Pennzip Ethyl 200; on White Gasoline 15% per gallon. 

The above prices will apply on all seryice station charge accounts, and be 
the basis from which commercial discounts will be figured. 

A discount of 20 per gallon will be allowed from the above prices on all 
gasoline sold for cash at the pump. 

Coupon books, where used, will be sold to ail classes of consumers for cash 
only, and at face value. The coupons are redeemable at the cash discount 
^'rice. ' 

Margins to dealers on Pamzip and Pennzip Ethyl will be 30 per gallon ; on 
White Gasoline l^/^i^. These margins are under the service station cash price. 
Controlled accounts will be allowed a %0 per gallon greater margin on all 
grades; however, in no case must the total rental plus dealer's margin exceed 
the controlled dealer margins as stated above. In other words, if there are 
any accounts on which you are paying more than one-half cent rental, then 
the open dealer margin must be reduced to bring the account in line. 

Tank car prices on Pennzip gasoline to our distributors will be 5%0 per 
gallon under the cash service station price; on Ethyl gasoline, a 5^/^0 spread 
will be allowed under the Ethyl cash price; White gasoline will be billed it 
5%0 per gallon under the service station cash price for Pennzip gasoline. 

Commercial tank wagon quantity discount contract customers will be estab- 
lished as follows, 

and they go on and give quite a line of discounts on quantities of 
from to 6,250 gallons and from 6,250 to 25,000, and from 25,000 up. 

I offer that. 

Acting Chairman Williams. In each case, if you will (and it will 
save time) , will you give the date, the party to whom the communi- 
cation is addressed, and by whom it is signed and how you received 
it. Did you receive this exhibit through the mail ? 

Mr. Ingram. Yes, sir. 

Acting Chairman Williams. It doesn't seem to be addressed di- 
rectly to you, simply branch managers. 

Mr. Ingram, And distributors. That comes through the mail. 
They send a lot of mail that way. 

Acting Chairman Williams. They send those to all the. dis- 
tributors ? 

Mr. Ingram. Yes, sir. 

Acting Chairman Williams. At least you got it as one of the 
distributors and it is signed by the representative of the Pennzoil Co. ? 

Mr. Ingram. Yes, sir; it comes through the mail; yes, sir. 

Acting Chairman Williams. That is admitted. 

(The document referred to was marked "Exhibit No. 1237" and is 
included in the appendix on p. 9228.) 

Mr. Ingram. From The Pennzoil Co., Oil City, Pa., signed W. R. 
Birlnnayr, dated July 12, 1933 : 

Post the following retail, tank wagon, and dealers prices, effective July 18th, 
1933, at all service stations and bulk plants in the State of Ohio. 

I offer that, 


(The document referred to was marked "Exhibit No. 1238" and 
is included in the appendix on p. 9229.) 

Mr. Ingram. The Pennzoil Co., Oil City, Pa., July 12, 1933, signed 
W. R. Birkmayr, manager, gasoline division : 

Post the following retail, tank wagon, and dealers prices. 

(The document referred to was; marked "Exhibit No. 1239" and is 
included in the appendix on p. 9230.) 

Mr. O'CoNNELL. Whom are these addressed to? 

Mr. Ingram. There is no addressing to them. It is sunply a price 
bulletin that comes through every time a price is changed. 

Mr. O'CoNNELL. These are documents that you received from the 
Pennzoil Co. ? 

Mr. Ingram. That is right. 

Mr. Cox. Are they mimeographed ? 

Mr. Ingram. I don't know whether it is mimeographed or what 
they are ; they are some kind of a printed bulletin. 

From the Pennzoil Co., July 28, 1933, the same type of thing. 
That was signed W. R. Birkmayr. 

(The document referred to was marked "Exhibit No. 1240" and is 
included in the appendix on p. 9230.) 

Mr, Ingram. The Pennzoil Co., August 8, 1933, signed W. R. 

(The document referred to was marked "Exhibit No. 1241" and 
is included in the appendix on p. 9231.) 

Mr. Ingram. September 1, 1933, signed W. R. Birkmayr, from 
the Pennzoil Co. 

(The document referred to was marked "Exhibit No, 1242" and 
is included in the appendix on p. 9231.) 

Mr. Henderson. Are these retail price lists? 

Mr. Ingram. Both retail and wholesale price lists. September 6, 
1933, signed W. R. Birkmayr. 

Mr. Henderson. Another price bulletin? 

Mr. Ingram. Yes, sir; these jire all price bulletins referring to 

(The document referred to was marked "Exhibit No. 1243" and is 
included in the appendix on p. 9232.) 

Mr. Ingram. A letter from ,the Pennzoil Co. to branch managers 
and distributors regarding prices, the same thing with a retail price 
bulletin attached to it, signed R. A. Browne, sales director, Penn- 
zoil Co. 

The document referred to was marked "Exhibit No. 1244" and is 
included in the appendix on p. 9233.) 

Mr. Henderson. Is there anything in the memoranda which sug- 
gests the basis upon which they have fixed their resale price? 

Mr. Ingram. "Service station, consumer tank wagon, divided dealer, 
undivided dealer." 

Mr. Henderson. I mean how they arrived at the price they set 
in this bulletin. 

Mr. Ingram. How they arrive at it? 

Mr. Henderson. Yes. 

Mr. Ingram, No; it just says "State-wide structure." 


Mr. Henderson. What do you understand "State-wide structure" 
to be? 

Mr. Ingram. State-wide structure, the price that the Standard 
Oil Co. has posted in Cleveland, Ohio. 

Mr. Henderson. Do you mean that the price in these bulletins 
sent to you as a distributor was the same as the price set by Standard 
Oil of Ohio in Cleveland? 

Mr. Ingram. My exhibit A or my contract there dated 1934 and 
running until 1936 definitely states that the price shall be that as 
posted by the Standard Oil Co. of Ohio for X-70 gasoline.^ 

Mr. Henderson. Yes; but some of these bulletins are 1933. 

Mr. Ingram. Yes. 

Mr. Henderson. The ones you have just been introducing are 1933. 

Mr. Ingram, Some of them are 1933. This is 1934 now. 

Mr, Henderson. Did you' have a contract in 1933? 

Mr, Ingram, I did, 

Mr. Henderson. Did it contain the same clause ? 

Mr. Ingram. That I can't say; I couldn't find it or I would have 
brought it down. 

, Mr. Cox. Mr. Ingram, here is one dated July 12, 1933, headed 
./ "The Pennzoil Co^ -• and it says, "Post the following retail, tank- 
,. wagon, and dealer^ prices effective July 13," which was the next day. 
Did you change your prices on July 13? 

Mr, Ingram, Yes, sir, 

Mr. Cox, Do you know whether the Standard Oil Co. of Ohio 
changed its prices on the 13th? 

Mr. Ingram. That is when they did it. 

Mr. Cox. You are sure it didn't change its prices on the 12th, the 
day you got this ? 

Mr. Ingram. No, sir; it never does. We are always notified ap- 
proximately a day ahead of time of any price change taking effect 
by the Standard Oil Co. We are told that effective the next morn- 
ing our price will be so-and-so, which will be the same price as the 
Standard Oil. 

Mr. Cox. Of course, this bulletin doesn't say anything about the 
Standard Oil Co. 

Mr. Ingram. No, sir. 

Mr. Cox. It just says that there will be a price change on the 
13th of July. 

Mr. Ingram. Yes, sir. ' 

Mr. Cox. But it is your testimony that on the 13th of July the 
Standard Oil Co, did change its price. 

Mr. Ingram. That is right. 

Mr. Cox. And it posted the prices that are shown in this bulletin ? 

Mr. Ingram, Yes, sir. We have never deviated, 

Mr, Henderson. May I get that straight, Mr. Cox? I missed the 
first part of that. You said you are notified in advance about a 
change in price for Pennzoil. which when it goes into effect is the 
same as the Standard Oil price 

Mr. Ingram. They generally either call me up, most always call 
me ; they have an office in Canton, as well : "George, tomorrow the 

1 "Exhibit No. 1231," appendix, p. 9221. 
2 "Exhibit No. 1239," appendix, p. 92.S0. 


Standard's rate is the price, so much," and there maj be a few com- 
ments and we might do a little cussing and discussing about it, de- 
pending on whether there is a raise or drop in the price, but our 
price will be the same as Standard's 

Mr. Henderson. Is that the uniform practice? 

Mr. Ingram. That is the uniform practice. 

Mr. Henderson. That is, you want us to understand that Pennzoil 
has some information in advance as to what Standard Oil is going to 
do on a certain day? 

Mr. Ing^m. Well, evidently they must or they couldn't notify me 
a day ahead of time what they are going to do. 

Mr. Henderson. And they do that practically every time? 

Mr. Ingram. That is right, sir. 

Mr. Henderson. Have you ever been caught off base by a change 
in price of which you hadn't been notified ? 

Mr. Ingram. Mayoe onlj when I was out of town. 

Mr. Cox. What about this last price change on Saturday of last 
week ? There was a price change, wasn't there ? 

Mr. Ingram. Yes; there was a price change on Saturday of last 

Mr. Cox. When were you notified of that ? 

Mr. Ingram. I was notified of that thing about 2 o'clock Friday 
afternoon. I ordered in four trains of gasoline. 

Mr. Henderson. On the old price? 

Mr. Ingram. Yes, sir ; or I wouldn't have ordered it. 

Mr. Cox. I am sorry I interrupted you. 

Mr. Henderson. Was that last Friday ? 

Mr. Ingram. Yes; October 6. 

Mr. Henderson. Wasn't that the day the representative of the 
Standard Oil of Ohio was on the stand here explaining how retail 
prices are made? ^ 

Mr. Snyder. That was the 6th. 

Mr. Cox. Of course, that price announcement was published in the 
papers on Friday. 

Mr. Ingram. Friday night it was ; yes, sir. 

Mr. Cox. Published in the papers Friday night and you knew it 
at 2 o'clock in the afternoon. 

Mr. Ingram. That is right. 

Mr. Henderson. Do the Pennzoil people ever tell you how they 
happened to know what Standard was going to do? 

Mr. Ingram. Well, they told me of various meetings that had taken 
place in Cleveland, and so forth, where Mr. Harrison of the Sun 
Oil Co. of Detroit and someone from Pennzoil and someone from 
Texas and someone from one of the others would be up there and 
discussing this policy, and |:hen the price generally changes a day or 
two after they te)! me they have haa one of those meetings. 

That is all I know, that they tell me that they have these meetings. 

Mr. Henderson. In Cleveland. 

Mr. Ingram. That is what they say, sir. 

Acting Chairman Wii^uams. What is the relationship, if any, 
between the Standard Oil and the Pennzoil ? 

Mr. Ingram. Well, I have always been led to believe, or rathfer up 
until a short time ago, that Standard had some interest in Pennzoil 

'Sidney A. Rw«»nsrud, vic-c president, whose testimony appears in Hearings, Part 15. 


through South Penn, which is their company. It has always been my 
opinion — purely my opinion, I don't know the inside operations of 
Fennzoil — that it is some way hooked up with Standard Oil Co. 

Acting Chairman Williams. During the years that you have cov- 
ered by these bulletins here, how much has the price fluctuated? 
Have you got that in your mind, the limits of the fluctuation, the 
minimum and the maximum price of retail oil ? 

Mr. Ingram. That I can't tell you, sir. 

Acting Chairman Williams. You have been in the business, you 
know about how it has fluctuated say for the last 4 or 5 years. 

Mr. Ingram. In the last 4 years, or since the N. K. A. — N. K. A. 
was the greatest thing for the little-business man and the little oil- 
man because it did give them a fair margin to work on and gave them 
a fair principle. 

Acting Chairman Williams. Since the N. R. A. 

Mr. Ingram. Since the N. R. A. our margin has been gradually 
cut. Our price has been going down and down. We got approxi- 
mately 20 cents around N.^ R. A. times; today in,' Canton we are 
getting 15 cents, last week it was 141/2 cents retail price. 

Acting Chairman Williams. The retail price has been consistently 
downward, has it? 

Mr. Ingram. Yes, sir. 

Acting Chairman Williams. There have been times 

Mr. Ingram (interposing) . Oh, there have been times when itj^has 
jumped up for a feys^ months. 

Acting Chairman Williams. Just last week the Standard Oil raised 
it a half a cent, didn't they ? 

Mr. Ingram. In Canton ; yes, sir. 

Acting Chairman Williams. Was that general ? 

Mr. Ingram. They raised it all over the State of Ohio, but in Cleve- 
land they retail their gasoline at their company-owned stations which 
they maintain as an established retail outlet where they own and 
operate then;! by pay roll, an 18-cent price ; the gasoline that comes to 
Canton is sent down by pipe line and sells in Canton today for 15 
cents. There certainly is something wrong when the stuff is made in 
Cleveland and they get 3 cents a gallon more for it than they do in 

Acting Chairman Williams. Do you know why that is ? Have you 
any explanation for that? 

Mr. Ingram. Well, we have a couple of so-called tank-car stations. 
One of them is the Railway Oil Stores, which does an extreme volume 
of business. I am told pretty nearly monthly by various oil men 
what their total gallonage is — I don't know it myself, I don't care to 
know it, I am trying to take care of my own business instead of the 
other fellow's — that they are the fault of the market in Canton, one 
station doing around 100,000 gallons of gasoline a month. 

Acting Chairman Williams. Do you mean that the price is lower 
in Canton than it is anywhere else ? 

■ Mr. Ingram. The price is lower in Canton than it is right outside 
of the city limits. I have one station that is outside of the city 
limits and the price is a cent different there. 

Acting Chairman Williams. Same gas? 

Mr. Ingram. Same gas from the same source. In Cleveland it is 
the same gasoline and the gasoline that comes to Canton by the Stand- 



ard Oil Co. is made in Cleveland, it retails in Cleveland at 18 cents 
and it sells in Canton for 15 cents and half of the major oil companies 
get their gasoline from the Standard pipe line in Cianton. 

Acting Chairman Williams. Then the retail price doesn't follow 
the Standard Oil? 

Mr. Ingram. It doesn't follow the Standard Oil? 

Acting Chairman Wiixiams. Does it? Don't they make a price? 
Isn't their price general or is it? 

Mr. Ingram. Oh, no, they make the price for the districts. 

Acting Chairman Wilijams. They make it different in different dis- 
tricts — I mean in the same territory, in Ohio, for instance? 

Mr. Ingram. In Ohio they have districts, yes, sir, that they change 
the prices in. 

.voting Chairman Williams. And how much does that vary? 

Mr. Ingram; Sir? 

Acting Chairman Williams. Does that vary as much as the 3 cents 
that you have indicated here ? 

Mr. Ingram. Yes, sir. 

Acting Chairman Williams. You mean now that the Standard Oil 
itself has a retail price, fixes a retail price of gasoline at a price vary- 
ing as much as 3 cents in the State of Ohio in different localities? 

Mr. Ingram. Yes, sir. 

Mr. AviLDSEN. What basis have you for saying that they fix the 
price in Canton? They don't actually own and operate a key sta- 
tion in Canton, do they ? 

Mr. Ingram. Three, thank you. 

Mr. AviLDSEN. The Standard Oil Co. operates three wholly owned 
key stations in Canton. 

Mr. Ingram. Yes, sir; superstations. 

Mr. AviLDSEN. They sell at 15 cents? 

Mr. Ingram. Yes, sir. 

Mr. Henderson. Is that due to the intensity of competition in 
Canton from other majors? 

Mr. Ingram. They are key stations, sir, and are approximately 
2 miles, I would say, from this tank-car station which their various 
agents, and so forth, nave told me are the source of trouble. 

Mr. Henderson. I didn't quite get that. What about the tank-car? 

Mr. Ingram. Railway Oil Stores maintain a tank-car station on 
what we call Cherry Street — Fifth and Cherry. The Standard Oil 
Co.'s key stations are approximately 

Mr. Henderso^t (interposing). Who owns this station? 

Mr. Ingram. Railway Oil Stores. 

Mr. Henderson. What is Railway Oil Stores? Is that a major? 

Mr. Ingram. No, sir. 

Mr. Henderson. That is an independent? 

Mr. Ingram. Yes, sir. , 

Mr. Henderson. Do you know they get their gas mainly? 

Mr. Ingram. Well, if you take one of the Ohio black books, it will 
probably tell you where every car you got during several years came 

Mr. Henderson. What do you mean, black book ? 

Mr. Ingram. Black book. Didn't you ever hear of the Ohio black 


Mr, Henderson. I am supposed to be asking the questions. You are 
to give the answer. What is the black book ? 

Mr. Ingram. Well, I am getting a little ahead of my exhibits here. 

Acting Chairman Williams. Well, we will take that up later. 

Mr. Cox. I think you had better straighten out the record as to the 
question the chairman asked about the relation between the Pennzoil 
Co. and some other major oil companies. You answered generally, I 
think, that it was your opinion there was some relation between the 
Pennzoil Co. and the Standard Co. ; you didn't mean the Standard of 
Ohio, did you ? 

Mr. Ingram. I mean the Standard foundations, or whatever they 
are called, which is the controlling factor. 

Mr. Cox. What company particularly did you mean? Did you 
mean the Standard of Ohio? 

Mr. Ingram. No, sir. I can't say. I told you that my opinion was 
that they had a relation with someone of the Standard group. I 
don't know what group it was. 

Mr. Cox. You don't mean the Standard of Ohio ? 

Mr. Ingram. No, sir. 

Mr. Henderson. Mr. Cox, does the staff have information as to the. 
relationship between South Penn and any of the Standard group? 
Is it related to Star dard Oil of New Jersey? 

Mr. Berquist. The South Penn Oil Co. has a fifty-two and a fraction 
percent inte est in the Pennzoil Co. and the Tidewater Associated has 
between a 1 5 and 17 percent interest in South Penn Co. The South 
Penn Co. was one of the former Standard Oil group. 

Mr. Henderson. What is Tidewater? 

Mr. Berquist. Tidewater Association is one of the major groups 
and operates in Texas and on the Pacific coast. 

Mr. Cox. The answer then, as far as we know, is that there is no stock 
relationship between Tidewater and any company of the Standard Oil. 

Mr. Berquist. No. ., 

Mr. Ingr/m. Another price bulletin, dated October 13, 1934, no 
signature, but just typewritten, Pennzoil Co., Oil City, October 13 

Acting Chairman Williams. Where did you get it ? 

Mr. Ingram. It comes through the mail to me from Oil City. 

Acting Chairman Williams. Is there anything peculiar about it and 
different from the rest of them ? 

Mr. Ingram. Except that it is a reduction in price it follows the 
same form. 

(The bulletin referred to was marked "Exhibit No. 1245" and is 
included in the appendix on p. 9234.) 

Mr. Ingram. Another one dated November 26, 1934. 

Acting Chairman Williams. I suggest now to expedite the matter 
if those are all the same general form unless there are some that have 
some special difference that you want to comment on, that they all be 
introduced together providing they are all identified. 

(The bulletin referred to was marked "Exhibit No. i246" and is 
included in the appendix on p. 9234.) 

Mr. Ingram. Some have something special. 

Mr. Cox. Why don't you pick out some that have some special signi- 
ficance and tell us about them ? \ 


Acting Chairman Williams. I understand you are offering all these 
as one exhibit and they may all go in together if they are properly 
identified, and I see no reason to take any particular time with them 
if they are all substantially the same. 

Mr. Ingram. Do you want me to read the dates of them, or is it 
necessary ? 

Acting Chairman Williams. I think not. They are all signed by 
representatives of the Pennzoil Co., and addressed to you, or received 
by you through the mail. 

Mr. Ikgram. Yes, sir. Not all of them are signed, some of them are 
just typewritten or rather printed on the bottom, Pennzoil Co., Oil 
City, April 13, 1935. 

Acting Chairman Williams. Is it their stationery or just blank? 

(The witness held up the document.) 

Acting Chairman Williams. I can't see it from here. They, I 
think, may be admitted as one exhibit. 

The letters referred to were marked "Exhibit No. 1247'' and are 
included in the appendix on p. 9235.) 

Mr. Cox. Do you have any of those price announcements that relate 
to the price after the contract changes so the price was no longer 
stated to be based on Standard Oil price? That was sometime in 
"36, wasn't it? 

Acting Chairman Williams. Did you understand there was a ques- 
tion asked you? 

Mr. Cox. I asked you if you had some price announcements there 
that related to the time after the change in the contract which was 
made,' I believe, in 1936, according to your earlier testimony. 

Here is one. I will ask you about one you have already put in, Mr. 
Ingram. Here is a price bulletin on the letterhead of the Pennzoil 
Oil Co., Oil City, Pa, ; no date on it, but it bears the statement at the 
top, "Prices effective March 15, 1937, Ohio State-wide structure," ^ 
and then it contains consumer tank-wagon prices, divided dealer 
prices, undivided dealer prices. It contains a statement on the1x)t- 
tom, "Effective March 15, 1937, gasoline declined 1^, making retail 
price 19^, taxes included." 

Do you recollect when you received that ? 

Mr. Ingram. I would say the morning of the 15th. 

Mr. Cox, Did the prices in Canton change on the 15th in accord- 
ance with that? 

Mr. Ingram. Yes, sir. 

Mr. Cox. Did the Standard Oil Co. of Ohio's change? 

Mr. Ingram. Yes, sir. 

Mr. Cox. And other major oil companies' prices? 

Mr. Ingram. Yes, sir. 

I think I know what you are asking for: I think I jiave it in front 
of me here, sir, if I may read it, a letter dated November 17, 1934, 
to all branch managers 

Acting Chairman Williams (interposing). No; that wouldn't 
be it. 

Mr. Cox. That ^oes back before the time I am interested in. I am 
interested in the time after that new contract that you told us about 
a little earlier this morning. 

1 Included in "Exhibit No. 1247." 


Mr, Ingram. You mean 1936? 

Mr. Cox. That is right. 

Mr. Ingram. You are getting me ahead of some of my exhibits. 

Mr. Cox. I thought you had all your price announcements there to- 
gether, but I may have ipisunderstood you. 

Mr. Ingram. I did, but I had them from 1933 on through; see? 

Mr. Cox. I see. Do you have any there now for any period subse- 
quent to '36 or in '36. 

Mr. Ingram. I have one dated August 25, 1939, but this is my 
exhibit G that I intended to present. 

Mr, Cox. All right ; you go ahead then. 

Acting Chairman Williams. Have you all your exhibits presented 
there under what you denominated exhibit F ? 

Mr. Ingram. No, sir; I have not. I have three here to put in yet, 
which I wanted to read. 

November 17, 1934. 
To Ohio Branch Managers and Distriiutots : 

Price Structure for the State of Ohio 

This is to adyise you of a new price schedule which we will put into effect on 
November 26th. You will notify all your dealers. 

The matter of dealer and distributor margins is recognized as one of the 
most important problems in the marketing branch of our industry, and it is 
generally recognized that these margins are too wide and will have to be nar- 
rowed if the refiner, distributor, and dealer are to protect themselves against 
the inroads of price cutters. 

The Stabilization Committee of Region No. 3, under date of October 27th, recom- 
mended for this region a reduction in dealer margins to 3%^ on Ethyl and house 
brand. • • ♦ 

An ideal margin structure would seem to be one in which refiner, distributor, 
and dealer shared in good as well as bad periods, and which had sufficient flexi- 
bility to meet competition as it occurred. Both dealers and distributors realize 
that one of the difficulties in meeting competition has been the burden of a rigid 
and inflexible margin. We are accordingly adopting a sliding scale of margins 
varying with the spread between the base tank-car price and the local service- 
station price. 

The Standard Oil Company of Ohio's tank-car price for- above 65 octane gasqr 
line is based upon the low of the Oklahoma refinery market for 63-70 octane 
gasoline, as published in Piatt's Oilgram, plus 2%^. The difference to the nearest 
Vsij! between that base price, to wit: The Standard Oil Company's posted tank-<:ar 
price in Piatt's Oilgram, and the local service-stktion price is the total spread 
upon which the dealer and distributor margins will be based. 

Mr. Henderson. That stabilization committee was part of the code 
organization, was it not? 

Mr. Ingram. I imagine it was, sir ; I am not sure. 

Mr. Cox. Was that letter received by you at the time when your 
contract still contained the provision that the price was to be based 
on Standard Oil Co.'s posted price; is that correct? 

Mr. Ingram. The 6-cent margin ; yes, sir. They changed the struc- 
ture in here. 

Now attached to it is this: Pennzoil Oil Co., November 17, printed 
on the bottom, R. A. Browne : 

On this basis, effective November 26th, our margins on Peunzip for distributors 
and undivided dealer accoimts will be as follows. 

And then it goes down and shows when the spread is 6I/2 cents to the 
undivided, it js 4 cents to the divided dealers ; when it is 6 cents, it is 


3% cents; when it is 5 cents, it will be 314 cents; and when it is 41/2 
cents, it is 3 cents. 

The margin to undivided dealer accounts for Pennzip Ethyl will be the. same 
as above. * ♦ * 

Mr. Cox. May I see that? This is dated November 17, 1934; both 
pages. Do you recall about what time you got it through the mail ? 

Mr. Ingram. I probably got it the next day. They send it out, and 
I receive my mail the next morning. 

Mr. Cox; And that refers to a price change which is going into effect 
on November 26, about 9 days later. Did the price change on that 
date, November 26 ; do you recollect? 

Mr. Ingram. I imagine it did, sir ; I don't recollect directly. If that 
is what it said, that is what happened. 

I have a letter from the Pennzoil Oil Co., November 23, 1934, signed 
R. A. Browne : 

All Distributors in Ohio. 

Gentlemen : The contract under vphich we are supplying you with your gaso- 
line provides, under "Minimum Price," specific net-back figures at our refinery. 
Due to the general gasoline price structure, we have not been enforcing this 
clause in the contract, with the result that our company has been standing heavy 
losses in connection with the manufacture and sale of its gasoline. 

In view of the new marketing program, which we are putting into effect on 
the morning of November 26th in Ohio, this is to advise you that, effective on 
that date and until further advised, or the retail price adjusts itself to a point 
where the minimum clause would not be operative, it will be necessary for us 
to accept all orders at a price which will absorb a portion of the loss we have 
been sustaining. 

This price, however, at no time will be less than the price which will be 
charged to distributors under the new distributor contract, which will become 
effective and written on and after November 26th. Copy of" this new contract 
form was mailed you on November 17th. 

We regret the general conditions which make this step on our part imperative, 
and we look for full cooperation on your part in immediately putting into effect 
the full program as scheduled for November 26th. We believe that eventually 
this will work to the benefit (?f all concerned. 

Now I have a price-change bulletin here, Pennzoil Oil Co. ; no signa- 
ture on it : 

November 17, 1934. 
To Pennzoil Dealers: 

Due to the disorganized price conditions in the retailing of gasoline, effective 
November 26th, and until further notice, we propose to place our dealers on a 
margin based »on the difference between the tank-car price, as posted by the 
Standard Oil Company of Ohio, and our posted service station price. 

The difference between these two prices at the present time is 5%0, which will 
allow us to give the undivided dealer 3i^0 and the divided dealer 30. 

Under this method the dealer's margin will be increased as the spread between 
tank-car and service-station price increases, and will be automatically decreased 
where this spread is reduced either in' depressed price areas or for other causes. 

We believe that the policy covered by this revised price schedule is necessary 
to protect the interest of ourselves as well as our retail dealers, and believe that 
our dealers will see the fairness of the policy. 

Mr. Cox. Are those all your exhibit F ? 

Mr. Ingram. Yes. 

Mr.. Cox. I want to be sure what your testimony is as to the period 
of 1936. Is it a fact that after 1936 you still received these notifica- 
tions of price changes in advance of the date on which they became 
effective ? 

124491 — 40— pt. 16, sec. 3 10 


Mr. Ingram. Yes, sir ; either by telephone or mail. 

Mr. Cox. And then on the day on which they became effective the 
Standard Oil of Ohio, as well as the Pennzoil Co., would change its 
prices on that date ? 

Mr. Ingram. Correct, sir. 

Mr. Cox. And the other major oil companies changed their prices 
also ; is that correct ? ' 

Mr. Ingram. Yes, sir. 

Mr. Cox. Has that continued up to the present time ? 

Mi^. Ingram. Yes, sir; it did Saturday when the price changed. 

Acting Chairman Williams. Now for the record these various ex- 
hibits that have been put in under what have been designated as 
exhibit F should be marked 1, 2, 3, and so on. 

The Clerk. The others have been numbered consecutively. They 
should have been introduced as one exhibit. 

Acting Chairman Williams. That was what I had in mind. They 
will be accepted for the record. You can decide the manner they will 
go in. 

(The documents referred to were marked "Exhibit No. 1248" and are 
included in the appendix on p. 9237.) 

Mr. Ingram. But he won't change my letters so I don't get mixed 
up here? 

Acting Chairman Williams. You have put in all the letters you 
have on that subject, haven't you? 

Mr. Ingram. I have. My exhibits are set up as A, B, C, D, and so 

Acting Chairman Williams. TheyVill all be exhibits designated by 
different numbers. 

The Clerk. All exhibits admitted to the record are numbered con- 
secutively, irrespective of how you identify them. After being set 
in type yours will be returned to you if you wish.^ 

Mr. Ingram. I offer as exhibit G a price-change bulletin which I 
received in an envelope, the name Pennzoil Oil Co. on it, on the 
morning of August 26. 

Acting Chairman Williams. What year ? 

Mr. Ingram. 1939. 

This is a mimeographed bulletin headed "The Standard Oil Co. 
(an Ohio corporation) . A. A. Stambaugh, vice president." [Reading 
from "Exhibit No. 1249 :] 

To Divuion Managers: 

In connection with our Motor Gasoline Price Structure previously announced, 
kindly note the following changes : ; 
Stark County, City of Canton : 

Change from: Tank Wagon Price Exception No. 2. 

Change to : Tank Wagon Price Exception No. 3. 

Acting Chairman Williams. Right there, before you go any fur- 
ther, what does that mean? It doesnl mean anything to me, 

Mr. Ingram. And it didn't to me until somebody put some pencil 
notations on here before it was mailed to me by the Pennzoil Co., 
which says the tank-wagon price exception No. 2 is 13 cents, and 
tank-wagon price exception No. 3 is 12i/^ cents. 

^ The exhibits submitted by Mr. Ingram were returned to him ; the Committee h^s no 
copies of them in its files. 


Mr. Cox. Does it mean that there was a change in your price? 
Does that indicate to you there was a change in your price? 

Mr. Ingram. There was a change in my price; yes, sir. 

Mr. Cox. What was that change? 

Mr. Ingram. The tank-wagon price at that time was 13 cents, and 
it was changed to 12^^ cents. 

Acting Chairman Williams. Who does the exception part of it 
mean? How did you know it applied to you? 

Mr. Ingram. Well, this was mailed to me and the price went down. 
And it was mailed to me by the Pennzoil Co. 

Acting Chairman Williams. Well, it seems to me that it is a 
question of whether you come under exception 2 or 3. As I say, 
that doesn't mean anything to me at all, as to what exception 2 or 3 is. 

Mr. Ingram. It says "Change from tank-wagon price exception 
No. 2 to tank-wagon price exception No. 3." 

Now, from what I understand, instead of designating it as to 
prices any more, they have certain numbers. The price is 12 cents 
in a town or it is 15 cents in a town, or it is something else. I think 
I can clarify that by going a little further into it. It says: 

Tank Wagon Price Exception No. 3. 
Prices to Consumers (inclusive of tax). 


Prices to Resellers & Agents (inclusive of tax). 

Consumers: Divided accounts: 

Sohio Supreme, 17.5 cents. Sohio Supreme, 14.5 cents. 

Sohio X-70, 15.5 cents. Sohio X-70, 13.0 cents. 

Renown, 15.5 cents. Renown, 13.0 cents. 

Agents : 

Sohio Supreme, 14.0 cents, 

Sohio X-70, 12.5 cents. 

Renown, 12.5 cents. 

Mr. Henderson. What do you propose to show by this particular 

Mr. Ingram. To show that it is Standard Oil Co. that sets the 
price in. Ohio, and that is the price that you have got to follow. 

Mr. Henderson. Do you mean that this particular bulletin is a 
Standard Oil of Ohio bulletin, and was sent to you by Pennzoil ? 

Mr. Ingram. Yes, sir; that is what I mean. 

Mr. Henderson. Was there any accompanying letter telling you 
that that was to be your price? 

Mr. Ingram. No, sir; but I was called up the day before and told 
the price had changed to that. We have been receiving this type of 
bulletin for quite some time, from Pennzoil, every time a price change 
takes place. 

Mr. Henderson. And this time, in August of this year, vou re- 
ceived a bulletin with the heading of "Standard Oil of Ohio. Was 
that the first time a Standard Oil of Ohio bulletin was sent you ? 

Mr. Ingram. No; I had received several, but J hadn't bothered to 
save them. It so happened that this one came in and I saved it. 

Mr. Henderson. Were you told by the Pennzoil representative in 
Canton, each of the other times you got them, that that was to be your 
tank-wagon price ? 

Mr. Ingram. Yes, sir. We are told what our tank-wagon price is. 


Mr. Henderson. I mean, were you told after you received this 
kind of bulletin? 

Mr. Ingram. Yes, 

Mr. Henderson. So what you are attempting to show is that Penn- 
zoil doesn't send you its bulletin now but sends you a bulletin by the 
Standard Oil of Ohio. Then the local representative calls you by 
phone and tells you that the price is going to be changed in con- 
formity with the bulletin you have received? 

Mr. Ingram. That is correct, sir. 

Mr. Cox. Do you always get these before the price is changed? 
Is that right? 

Mr. Ingram. This generally arrives the morning the price changes. 

Mr. Henderson. Has any explanation been given to you by any 
representative of Pennzoil concerning why they are using the Stand- 
ard of Ohio? Is it a matter of convenience? 

Mr. Ingram. Well, if the Pennzoil didn't probably follow the price 
of Standard of Ohio maybe the price would be lower yet. 

Mr. Cox. Did they ever explain to you how they happened to get 
the price bulletins of the Standard Oil Co. of Ohio before the prices 
changed ? 

Mr. Ingram. No. 

Mr. Henderson. You got that in the mail, so it is evident that the 
Pennzoil Co. at headquarters had it before the change was posted 
by Standard Oil. 

Mr. Ingram. It must have. It is dated August 25, and I got it, 
I thinkj^ August 26. 

Mr. Cox. When did tlie price change? 

Mr. Ingram. August 26. 

Mr. Cox. You said you received other bulletins like this, Standard 
Oil bulletins? 

Mr. Ingram. Yes, sir; there is probably one at home now of the 
change that took place Saturday. I wasn't there to get it. 

Acting Chairman Williams. All right; proceed. 

Mr. Ingram. I offer that. 

(The memorandum bulletin referred to was marked "Exhibit No. 
1249" and is included in the appendix on p. 9239.) 

Mr. Henderson. To make this clear, those pencil notations were 
on there when you got it? 

Mr. Ingram. Yes, sir. 

Mr. Henderson. Were they on the other ones you received? 

Mr. Ingram. Yes, ^ir. Otherwise I wouldn't know what the ex- 
ceptions meant. I have no code to find that out. 

Mr. Cox. I think perhaps someone had better read into the record 
the pencil notes he is referring to, because I see a pencil note on the 
corner that is yours. 

Acting Chairman Williams. The pencil note you are referring to 
is the figure 13 occurring- after the line which states "Change from 
tank-wagon price exception-No. 2." Following that is a pencil nota- 
tion "13." That is the one you are referring to. 

And immediately below that, in the next line, following the words 
"Exception No. 3," there is a pencil notation^f "121/^." 

Mr. Ingram. Then "down below there is some more. 


Acting Chairman Williams. Then further down, under the gen- 
eral subject of "Service stations," and following "Exception No. 2" 
is a pencil marking of "16," and in the next line, following the words 
"Exception No. 5," a notation of "141^." Those are the figures you 
refer to? 

Mr. Ingram. Yes, sir. 

Mr. Cox. These telephone calls you said you received — do they 
come from someone in Canton, or do they come from Oil City? 

Mr. Ingram. Pennzoil has a division office in Canton, therefore I 
handle practically all of my business through the Canton office, except 
mail such as this, invoices, and so forth, come from the general office 
at Oil City. 

Mr. Cox. Then these telephone calls come from Canton? 

Mr. Ingram. That's it, either Mr. Cavanaugh himself or one of 
the girls in the office, or somebody, calls up, always a day ahead of 
time, when a price changes, to notify us what has happened. 

Mr. Cox. And when they call you up do they say they are going 
to change the price, or do they say Standard Oil Co. of Ohio is 
going to change? 

Mr. Ingram. They generally tell us, "Standard of Ohio is chang- 
ing tomorrow." 

Acting Chairman Williams. You may proceed with exhibit H, 
I believe it is. 

Mr. Ingram. Exhibit H is a series of postal cards which I have 
received through the mail. I will read them one by one as they 
come through. 

Acting Chairman Williams. Are they all generally the same? 

Mr. Ingram. They are all different. Every postal card is dif- 
ferent. It has been over a period of time. 

Mr. Cox. Perhaps, before you read those, you might tell us what 
they are, so we will know something about them. 

Mr. Ingram. These postal cards are notices sent out by what is 
know as the Stark County Gasoline Retailers' Association. The 
Stark County Gasoline Retailers' Association is principally com- 
posed of nothing but what is known as lease and agency members, 
meaning by that practically all the boys that belong to this asso- 
ciation, outside of probably their clothes on their back, that is all 
they own, and maybe a gallon or two of gasoline in the tanks. The 
companies own the buildings and everything else and dictate the 
policies and try to rile them up by various suggestions of how to get 
rid of their competition. They are the ones of this association. 

Mr. Cox. They sell the products of major companies? 

Mr. Ingram. Principally. 

Mr. Cox. Principally? 

Mr. Ingram. They have maybe a few that don't — that is, a few 
members. I don't know their membership, but I know a good many 
of the heads of it, and every one of them are selling the products of 
major oil companies. 

Mr. Berquist. Are they lessees of major oil companies, most of 

Mr. Ingram. Well, the companies own the stations and they lease 
the stations to them. 


Mr. Berquist. The major companies own them? 

Mr. Ingram. Yes, sir. 

Mr. Cox. How long has this association been in existence? 

Mr. Ingram. That I can't tell you. I imagine for the last 3 years, 
or thereabouts. 

Mr. Cox. Did it exist before the adoption of the Iowa plan in 

Mr. Ingram. Well, we are not supposed to have an Iowa plan, 
but — ^no, sir. 

Mr. Cox. I will put the question this way. Did it exist before 
the major oil companies^ began to adopt or follow the plan of leasing 
the stations instead of owning them? 

Mr. Ingram. No ; it's only been within a couple of years. 

Mr. Cox. I don't think it is necessary, myself, for you to read all 
those postal cards. 

Mr. Ingram. Each one of them is different and has a different 
saying on it, sir, and that is why I would like to read 'them. 

Acting Chairman Williams. Can't you tell us what they are with- 
out reading them all? 

Mr. Ingram. These postal cards suggest the ^^etail price by which 
you must sell in Canton, and if you don't follow the suggested retail 
price you won't have any hoses on your pumps. I got up one mom- 
mg and every one of mine was cut off. They tried to raise the price 
above that of the Standard one time, or tried to get a cent a gallon 
more. Some of them today are getting a cent a gallon more, back ih' 
Canton, than the Standard does. 

But what I want to show by these postal cards, and then go to my 
next exhibit, "I," is that there is definitely a hook-up between the 
Standard Oil Co. and this group. I would like to be able to read 
these cards. 

Acting Chairman Williams. Well, I have no objection myself to 
your reading them, but it seems to me it is rather prolonging the 
hearing here. If you can tell us what they are, substantially 

Mr. Ingram (interposing). All right, I will read the one I re- 
ceived on October 7 : 

Effective this date, October 7, 1939, the price of gasoline will advance from 
tank wagon to you ; it is suggested that the retail price be posted at 160 for 
regular and 18(j: for high-test. It is also suggested and requested that all circus 
price signs be removed at once. Let us do something for ourselves without 
being forced to it. 

Mr. Cox. What kind of price signs? 

Mr. Ingram. Circus price signs. 

Mr. Cox. What is a circus price sign ? 

Mr. Ingram. Well, when this war started in Canton, the boys tried 
to outdo each other in building price signs larger than one another, 
more or less to let the public know that they were selling gasoline at 
less than in other parts of the State. 

Acting Chairman Williams. Well, now, that is the purpose of 
those cards, an effort to try to raise — to maintain the price, or raise 
the retail price. 

Mr. Chantland. Didn't you say something about being cut off 
some mornings? 

Mr. Ingram. My hoses being cut off; yes, sir. 



Mr. Chantland. What do you mean b;^ that? 
Mr. Ingram, Well, the dealers' association called me up. I think 
the regular price for Standard at that particular time was something 
like 17 cents, and they wanted to get 18 cents, and I refused to go 
along with them, or ".enter into any basis by which they might set 
the price. I was going to follow along the price at what the Standard 
was selling at, because I didn't think I could sell it at m.ore than 
they could sell it at, and I came down and I didn't have any hose on 
my pumps the next morning. 

Mr. Chantland. Do you mean they were physically cut off? 
Mr. Ingram, Yes, sir. 
Mr, Cox. You don't know who did that? 

Mr. Ingram, They told me it would be just too bad, I think we 
could show back here in Canton that that did take place, because I 
went to the prosecuting attorney and had the heads of that associa- 
tion brought in, and they more or less scared them out of the idea of 
bothering me there any further. 
That is exhibit H. 

Mr, Cox, Do you know whether or not all members of that as- 
sociation charge the prices which they suggest on those cards? 

Mr, Ingram, They did for quite a spell, but since the recent price 
war went into effect in Canton some of them deviated from it. 

Acting Chairman Williams, All right; those are all cards ad- 
dressed to you, and signed? 

Mr, Ingram, No signature. They came through the mail. Some 
of them have a typewritten .signature. 

Acting Chairman Williams. How do you know, then, where they 
came from? 

Mr, Ingram, It says "Gasoline Dealers' Association" on some of 
Acting Chairman Williams. Let me see them, 
Mr, Chantland, Do you know of your own knowledge, quite apart 
from these post cards, that this association is accustomed to sending 
out these post cards ? 
Mr, Ingram, Yes, sir. Some of them are signed by the association. 
Acting Chairman Williams. Do you know who R. G. Schimke, 
secretary, is? 

Mr. Ingram, He is secretary of the Stark County Dealers' As- 
Acting Chairman Williams. You know that yourself? 
Mr. Ingram. Yes, sir. 

Acting Chairman Williams. I think those signed by him, as repre- 
senting the association, are admissible. 

Mr. Cox, I would like to suggest, as to the ones that are not signed, 
that they might be admitted for the sole purpose of showing that 
Mr. Ingram received them, and not as proof of the fact that they were 
sent by this association, I think they are probably strictly admissible 
for that limited purpose. 

Mr. Ingram. May I ask this question : Are all of them typewritten, 
or are some of them written? We might be able to tell by that who 
sent them. 

Acting Chairman Williams. They are all typewritten. They may 
be admitted for what they are worth, because they are signed, prac-, 


tically all of them, by the secretary of the association, whom you know 
to be the secretary. 

Mr, Ingram. Yes, sir. 

(The post cards referred to were marked "Exhibit No. 1250" and 
are included in the appendix on p. 9240.) 

Mr. Ingram. All right, my exhibit I. 

These are various newspaper clippings. I will read the first one. 
[Reading from "Exhibit No. 1251" :] 

Independent gasoline dealers of the Canton area discussed the retail-price 
situation at a meeting Tuesday night in Keefer hall, but there was no deflniite 

M. M. Malloy, president, Said that negotiations were held with the Standard 
Oil Co. in an effort to get a uniform price throughout the coxinty, but that nothing 
had been accomplished. At present the retail price of gasoline is 15 cents in 
Canton and 16 cents outside the city. 

Independent dealers have protested the action of producers in cutting a cent 
a gallon off their margin of profit. 

Acting Chairman Williams. Let me see those. Are they all along 
the same liiie ? 

Mr. Ingram. They are along the same line, sir. 

Acting Chairman Williams. Just pass them iip here, will you ? 

Mr. Cox. What is your purpose in offering those ? 

Mr. Ingram. My purpose in offering those is to show that the dealers' 
association do work with the major oil companies in regards to price; 
that they have held meetings with one another in regard to price. 

Mr. Cox. These clippings don't go beyond showing that they havfe 
had meetings, do they ? There is nothing in there about their working 
together in any other way ? 

Mr. Ingram. No, sir. 

Acting Chairman Williams. I think they may be admitted, as we 
commonly say, for what they are worth, 

(The newspaper clippings referred to were marked "Exhibit No. 
1251" and are included in the appendix on p. 9241.) 

Mr. Ingram.- Exhibit J is a copy of a case in Stark County, Railway 
Oil Stores, Inc., an Ohio corporation, 522 Cherry Avenue NE., Canton, 
Ohio, plaintiff, against:— and then it lists a series of names, including 
the Stark County Gasoline Dealers' Association. 

Mr. Cox. Before you go on, is that a copy of a pleading of some 

Mr. Ingram. This is a copy of a pleading of the injunction that had 
been issued, and its finally being made permanent against this associa- 
tion and these various defendants on here, who are lessees. 

Mr. Cox. What court does that purport to be in ? 

Mr. Ingram. In the court of common pleas, case No. 79849. 

Acting Chairman Williams. Has it been finally determined? 

Mr. Ingram. It has. 

Acting Chairman Williams. No appeal pending? 

Mr. Ingram. Not that I know of, sir. There has been a perma- 
nent injunction issu'jd. 

Acfing Chairman Williams. When? (No response.) 

Mr. Cox. Where did you get this? 

Mr. Ingram. Where did I get it? 

Mr. Cox. Yes. 

Mr. Ingram. A copy of the records in the common pleas court* 


Mr. Cox. Did you have the copy made? 

Mr. Ingram. Did I have the copy made? No, sir; I borrowed it 
from the attorney that prepared it, or rather got it from the attor- 
ney thaft prepared it. 

Mr. Cox. It consists of a petition, a temporary restraining order, 
and a final injunction. 

Acting Chairman Williams. Is it certified? 

Mr. Cox. It is not certified. It appears to be simply a carbon 

Acting Chairman Williams. Are you familiar with this proceed- 
ing in this court about which you are talking? Were you a witness 
or present during the hearing? 

Mr, Ingram. I was not. What I want to bring out in regard to this 
case, I want to also attach this newspaper ad to it, which is self- 
explanatory. It is that at the time this was happening at the Red 
Head gas station I had at least 25 telephone calls, either at my office 
or my home, telling me I was next unless I discontinued the pre- 

Acting Chairman Williams. What is the purpose of this suit, just 
in a few words? 

Mr. Ingram. The purpose of that suit is that they tried to compel 
the Railway Oil Stores to raise their price of gasoline 1 cent, and if 
they didn't, the price would go down, which it later did. 

Mr, Cox. How did they try to compel them? 

Mr. Ingram. Well, they drove into the station with twenties, fifties, 
and hundred-dollar bills, and bought a gallon of gasoline, blocked 
the driveways by demanding that they have their windshields cleaned, 
ajid they had a gan^ of various station attendants, several of them 1 
identified. They either operated Texaco stations or Standard sta- 
tions, or Shell stations, and, in general, blocked this place so that 
the average public could not get into it for a period of 2 days. 

Mr. Cox. Were those the acts complained of in this suit? 

Mr. Ingram. Those are the acts complained of in that petition. 

Acting Chairman Williams. Who brought the suit? In general, 
who are they ? 

Mr. Ingram. The Railway Oil Stores are a competitor of mine. 

Mr. Henderson. It is a track-side company ? 

Mr. Ingram. It is a track-side company that I mentioned before. 

Acting Chairman Williams. Against whom is it brought, in gen- 
eral? Who are these defendants? 

Mr. Ingram. Those defendants: on the front there, principally all 
of them, are operators of major oil company leased stations. 

Mr. Cox. Do they belong to this association ? 

Mr. Ingram. Yes, sir. 

Mr. Cox. You know that they belong to it ? 

Mr. Ingram. Yes, sir. 

Mr. Chantland. You mean the association concerning which you 
have been testifying and offering bulletins and cards from ? 

Mr. Ingram. May I read this ad ? It will give you an idea of what 
went on. [Reading from "Exhibit No. 1253":] 

On June 22nd and 23rd a large automobile caravan driven, fifty witnesses tes- 
tify, by certain members of the Stark County Retail Gasoline Dealers Associa- 


tion and others, drove into the R6d Head track-side gasoline station located at 
522 Cherry Ave. NE., blocking the driveways with forty or fifty cars and trucks: 

Twenty-, fifty-, and hundred-dollar bills were flashed in payment of one-gallon 
purchases or less. Numerous services were requested, all with the obvious plan 
of tying up the station. When these "customers" ran out of service requests 
they still refused to move away from the pumps. Of course, this caused a gen- 
eral blockade of traflic, extending for several blocka, preventing the regular 
trade from getting gasoline. 

This.un-American movement was the result of the Red Head being unwilling to 
enter into price collusion with its competitors to raise and peg gasoline prices 
in Stark County. 

A temporary injunction has been granted prohibiting this malicious mischief^ 
and other interference in the operation of the Red Head Station. 

Mr. %^ox. What is that you are reading from ? 

Mr. Inrgam. That is a newspaper ad in the Canton Repository on 
Monday, June 26, 1939. 

Mr. Cox. Does it show whose advertisement it is ? 

Mr. Ingram. Railway Oil Stores, Inc., paid for it. 

Mr. Cox. What is the Red Head station ? 

Mr. Ingram. That is the brand they called their gasoline. 

Mr. Cox. You mean the Railway Oil Stores? 

Mr. Ingram. Yes. 

Mr. O'CoNNELL. I would suggest that the witness has apparently, 
to my mind at least, sufficiently explained the general situation in- 
volved in the lawsuit referred to in the advertisement, and I would 
suggest that the material be submitted, since the legal papers are not 
very well authenticated, but merely be filed with the committee. I 
think the record sufficiently indicates, the story without having the 
record contain the printed documents. 

Acting Chairman Williams. That is my view of it. I don't see any 
necessity for placing this in the record for publication. It will be 
filed for the record, without objection. 

(The pleading and newspaper clipping referred to were marked 
"Exhibits Nos. 1252 and 1253." respectively, and ai-e on file with the 

Mr. Ingram. Exhibit L is three so-called blacklists, as we call them 
in Ohio. On the face of tliem is "Classified Directory of Marketers of 
Petroleum Products in Ohio, Showing Refinery Sources of Supply, 
Revised Monthly." The first one is March 2, 1935. 

Acting Chairman Williams. Will you pass one of those up here? 
Let's see what they are. 

The heading is "Classified Directory of Marketers of Petroleum 
Products in Ohio," and then on the first sheet we have the statenient, 
"Ohio State Petroleum Committee, Columbus, Ohio, March 2, 1935." 
Who i^ the Ohio State Petroleum Committee ? 

Mr. Ingram. The only one that I knew of the so-called Ohio Petro- 
leum State Committee was Mr. Edward Reiser. Edward Reiser was 
the secretary for the Ohio Petroleum Industries Committee prior to 
the operation of the code. During the code he was secretary to the 
code, and after the code he operated again, as I understood, as the 
Ohio Petroleum Industries. 

Mr. O'CoNNELL. What is Ohio Petroleum Industries? Is it a trade 
association ? 

Mr. Ingram. Ohio Petroleum Industries, as far as I know, is not a 
trade association. From my personal opinion of it, it is primarily a 


major oil-company affair who have a man down in Columbus to take 
care of legislative matters. 

Mr. O'CoNNELL. Have you any reason to believe that your opinion 
is correct, other than it is your opinion ? Have you any facts that you 
can give the committee upon which you base that opinion ? 

Mr. Ingram. Ohio Petroleum Industries still operates. They have a 
secretary by the name of Jack Marsh. I do not know the membership 
of it. I am not a member of any association myself. But I do know 
that in legislative matters he represents nothing but the major oil 

Mr. O'CoNNELL. What is his last name? 

Mr. Ingram. Marsh — M-a-r-s-h. His offices now aie in Youngstown, 

Mr. O'CoNNELL. What is his regular business ; is he a lawyer ? 

Mr. Ingram. No ; Jack Marsh was with the old Vahey Oil Co. ; he 
was an oil man. 

Mr. O'CoNNELL. He has no direct connection with, or employment 
by, any oil company so far as you know ? 

Mr. Ingram. Not in my opinion ; no, sir ; he hasn't. 

Acting Chairman Williams. This list purports to have been filed by 
Edward Reiser, secretary. 

Mr. Ingram. That is it. 

Acting Chairman Williams. Do you know him ? 

Mr. Ingram. Yes, sir. 

Acting Chairman Williams. Is he the only member of this com- 
mittee; is he the one you were speaking of as being the member of 
the committee and the only one you know? 

Mr. Ingram. At one time he was secretary of the American Petro- 
leum Industries Committee in Ohio; that is, prior to the code. Up 
to the code days he was secretary there, then he was secretary of 
the code, and after the code for a short time he operated again, I 
think, as the American Petroleum Industries. 

Acting Chairman Williams. What is the purpose of introducing 
this, of presenting this exhibit? * 

Mr. Ingram. The purpose of introducing these exhibits is to show 
that unless we follow the market policy as dictated to us by our major 
supplier, we shall be put in that black book and we won't get any 
more gasoline. 

Mr. Chantland. What black book? 

Mr. Ingram. We call it the black book. 

Mr. Chantland. I thought tKi? was the list of classified marketers, 
rather than those who couldn't get it. 

.Mr. Ingram. No, no; this list is peculiar inasmuch as the first 
section shows what is known as the legitimate, honest dealers who 
don't cut the price, and they are not shown by tank cars and number 
of cars they get, and so forth, but when you get into the back sec- 
tion, or from the pink sheet on, you will find the fellows who operate ; 
it states that they sell for the other fellows, and you will find that 
maybe they got a tank car in there. Well, take, for instance, low- 
price stations at Marion, received three tank cars. The intermediate 

, 'Admitted, infra, p. 80.S5, as "lOx^iibit No. 1254," and placed on file with the 
" committee. 


agency was Boswell Co., and they all three originated from Taxman 
Refining, at Wichita, Kans. 

Mr. Chantland. What does the pink sheet show as to this new 
classification or after the pink sheet to indicate the situation? 

Mr. Cox. It might help us if he would tell us what the pink sheet 
is. How is what you call the pink sheet headed? 

Mr. Ingram. "Cut-price jobber section, summary of shipments, 
December 1935." 

Mr. Shaughnessy. December? 

Mr. Ingram. Yes; December 1935. 

Acting Chairman Williams. In that connection, are these books 
which you have exhibited here, you seem to have three of them, are 
they all the same except covering a different period? In other words, 
are they issued quarterly, monthly? 

Mr. Ingram. They were issued monthly. 

Mr. Chantland. Up to what time? 

Mr. Ingram. The last one I have is March of 1936. 

Acting Chairman Williams. Do you know whether they are being 
issued now or not, or have been within the last 3 years ? 

Mr. Ingram. That I cannot tell you. I have not received any since 
this last issue of March 12. However, I can say this, that various 
companies do go to the gasoline-tax department and get the gallon- 
age of what maybe another fellow is doing in the district. In Ohio, 
under our gasoline-tax law, we jobbers must put up a bond. We 
must report the origin of our gasoline. That is on record in the 
gasoline-tax division. 

Acting Chairman Williams. Those are public records. Anybody 
can get them? 

Mr. Ingram. Yes, sir; those are public records, but they are not 
put out promiscuously like this book was with the purpose of pri- 
marily shutting you off if you didn't buy your gasoline, or if you 
didn't maintain a price. 

Mr. Chantland. Do those price records show the price these people 
sold their gasoline for ? 

Mr. Ingram. No, sir; they do not. The tax records do not. 

Mr. Chantland. Then the information wouldn't be there that is 
in the back of the book. 

Mr. Ingram. The information that is in the back of this book was 
not tajcen from the tax records. 

Mr. Henderson. I believe it says in this one that the infoi-mation 
was compiled from the gasoline tax division and from information 
furnished by chairmen of county committees. 

Mr. Ingram. That one I think, sir, was published during the code. 
May I read you one that was published since the code? 

This directory has been compiled from information obtained from reports 
received by the gasoline tax division of the State of Ohio and from information 
furnished by members of the industry. 

Acting Chairman Williams.- What is the difference between that 
and this? What is meant here by a county committee? 

Mr. Ingram. The county committees, sir, during the code,^ were 
the committees that were set up in the counties. 

1 N. R. a. Code. 


Acting Chairman Williams. It refers to a code committee? 

Mr, Ingram. That is it; yes, sir; and are a code committee. Now 
the code, I think, stopped sometime in the early part of 1935. This 
book is March 12, 1936. [Reading from "Exhibit No. 1254" :] 

Ohio State Peieoleum Committee, Colxtmbus, Ohio, Mabch 12, 1936 

classified dikectoby january 1936 ebrvision 

Ohio Gasoline Consumption Chart. (Page 2.) 

Section 1: Percentage Table. (Page 3.) 

Section 2: Normal Price Marketers and Supplying Refiners. (Pages 4 to 12, 

inclusive. ) 
Section 3: Open Market Shipments to Normal Price Jobbers. (Pages 13 to 15, 

Pink Sheets : Summary of Section Four — Shipments to Cut Price Jobbers. 

(Pages 16 to 18, inclusive.) 
Section 4: Cut Price Jobbers. (Pages 19 to 30, inclusive.) 

This Directory has been compiled from information obtained from reports 
received by the Gasoline Tax Division of the State of Ohio and from 
information furnished by members of the industry. 

Mr. Cox. Why do you call that a blacklist? It is just a list of 
cut-price jobbers and dealers, isn't it? 

Mr. Ingram. Sir? 

Mr. Cox. Why do you call that a blacklist? As you read it to me 
it sounds like a list of cut-price operators. 

Mr. Ingram. It has both. One section of it here says normal-price 
jobbers, the other section says cut-price jobbers. 

The idea of this thing was this: That by word of mouth, from 
various oil companies, supplying companies, and so forth, that you 
got your name into the back pages of this book, if you sold gasoline 
for less than the price that they told you to sell it at and if you 
got your name in the back end of this book, you were out. 

Mr. Chantland. What do you mean, "otlt"? 

Mr. Ingram. You don' buy any more gasoline unless you went out 
and bought it from some broker or somebody like that. 

Mr. Henderson. Did you have any such experience as that? 

Mr. Ingram. Did I have any experiences? 

Mr. Henderson. Yes. Did you, when you were refused sales when 
you wanted to buy gas, confine yourself to the regular price ? 

Mr. Ingram. Under this book fortunately I was listed as a normal 
price jobber. But my New Deal Gasoline, New Deal Anti-Knock, 
which at those days was ' running 65 or better octane and which 
was regular gasoline, the same as others were selling as regular, I 
was selling at third-grade price. And when I tried to buy it other 
than from Pennzoil, who did supply me with most of it, but they had 
got into a little difficulty at the refinery, and said I had to buy some 
at the outside because they couldnt ship it, I was told I had better 
be doggoned careful where I bought it, if my name got in the back of 
that I wouldn't be able to get any more gasoline. 

Mr. Cox. Who told you that? 

Mr. Ingram. The Pennzoil Co. 

Mr. Cox. What time are you speaking of now ? 

Mr. Ingram. Oh, when these books were being published. 


Mr, Cox. As far as you know, the publication of these books has 
been discontinued? 

Mr. Ingram. As far as I know, it has, sir ; yes. 

Mr. Cox. It has been, 3 years since one came to you ? 

Mr. Ingram. That is.ri^ht. 

Mr. Chantland. Anything taking the place of them ? 

Mr. Ingram. Well, I don't know of any, sir; not that comes out 

Mr. Henderson. Have you any difficulty in getting a supply of 
gasoline ? 

Mr. Ingram. Recently I haven't; no, sir. 

Mr. Henderson. After, say, March 1936, did you have any 

Mr. Ingram. No, sir; I haven't had any difficulty in getting gaso- 

Acting Chairman Williams. Do you know of anybody else that 

Mr. Ingram. Do I know of anybody else? I know of a lot of boys 
that had trouble in getting gasoline. 

Acting Chairman Williams. Do you know the cause or the reason, 
for it? 

Mr. Ingram. Well, unfortunately, one day Mr. Schulroy, who is the 
head of the Fair Price Station at Akron, ran out of gasoline and 
wasn't able to get gasoline, and I hauled him a couple of loads of 
gasoline. Schulroy was a friend of mine, and there wasn't anything 
wrong lA trying to do a favor for a friend, but I was stopped imme- 
diately by a long-distance telephone call telling me if another drop 
of gasoline went there I wouldn't get aifiy more. 

Mr. Cox. When was this? 

Mr. Ingram. Sometime back in -1935 or '36. I loaned him some 
gasoline. He paid it back to me. 

Mr. Cox. Where did this long-distance telephone call come from? 

Mr. Ingram. Mr. Birkmayr, of the Pennzoil Cq. 

Acting Chairman Williams. Have you had experience like this in 
recent years — the last 2 or 3 years? 

Mr. Ingram. No, sir; I haven't. 

Acting Chairman Williams. Do you know of anybody else that 
has, within recent times? 

Mr. Ingram. That I can't say, sir ; I don't. Everybody seems to be 
able to get gasoline ; it is just the price that is the main situation. 

Mr. O'CoNNELL. Do I understand that there is a difference in the 
character of the list as regards the normal dealers as against the 
price cutting dealers, in other words is there additional information 
contained in the list? 

Mr. Ingram. Yes, sir; there is. 

Mr. O'CoNNELL. There is information as to the amount of ship- 
ments, the amount of gas that they have purchased, the source of 
their supply, and that sort of material ? 

Mr. Ingram. Yes, sir. 

Mr. O'CoNNELL. Is it on the list which applies to the price cutting ? 

Mr. Ingram. Yes; and only to price cutting. 

Mr. O'CoNNELL. And the normal dealers, so-called, are merely 
listed by name and address. Is that correct? 


Mr. Ingram. That is correct, and a percentage — in other words, 
we will. take the list here and we will go to, we will say my own little 
company, which is Pennzoil, they say the "New Deal Oil Co., Canton, 
Ohio, 0.032." That was my percentage of gallonage that I get. 

Mr. O'CoNNEjx,. Take a company from the pink list and read me 
the information opposite the name. 

Mr. Ingram. The Spur Distributing Co., Columbus, Ohio, num- 
ber of cars, four ; intermediate agenqy, Willy Coyle Corporation ; re- 
finery source, Toledo, GATX 14854 STCX 9707. GATX 14854 and 
GATX 6061. 

Mr. AviLDSEN. What are those last numbers? 

Mr. Ingram. It says under "refinery source," those show the four 
tank car numbers. 

Mr. Cox. Is that the trackside company that filed suit that you 
were talking about awhile ago in there? 

Mr. Ingram. Yes, sir. 

Mr. Cox. Is that in the pink section? 

Mr. Ingram. It is in what we call the pink section ; yes, sir. 

Acting Chairman Williams. Without objection the book may be 
received and placed on file. 

(The books referred to were marked "Exhibit No. 1254" and are on 
file with the Committee.) 

Acting Chairman Williams. Have you any other statement to 
make, Mr. Ingram? 

Mr. Ingram. I have one letter. Do you mean statement in regard 
to these? 

Acting Chairman Williams. No. 

Mr. Ingram. I have two other exhibits here, Exhibit "L," a mime- 
ographed bulletin. Standard Oil Co., an Ohio Corporation, A. A. 
Stambaugh. vice president. Cleveland, Ohio, June 14, 1934. [Read- 
ing from "Exhibit No. 1255":] 


The practice of our major competitors in permitting unbranded gasolines in 
tlieir outlets to be sold in conjunction with their regular house brands, but with 
all the appearances to the trade that such unbranded gasolines come from that 
marketer, is a practice that is upsetting our market. It will be necessary for tb«? 
state-wide price to be reduced to a point where our third grade gasoline meets 
this unbranded gasoline unless such conditions are corrected. \ 

I received that in the mail. There is no signature. 

Acting Chairman Williams. Was there anything on the envelope 
that it was received in to indicate where it came from ? 

Mr. Ingram. Absolutely nothing but a postmark, I think at the 
time, of Cleveland, because it certainly scared the life out of me. 

Acting Chairman Williams. Has it any date? 

Mr. Ingram. Yes, June 14, 1934. I was marketing my New Deal 
Anti-Knock Gasoline and this was an absolute threat that unless I 
carried to a third grade standard the price would be cut. 

Acting Chairman Williams. Nothing to indicate at all who it is 

Mr. Ingram. I will offer it as an exhibit. The indication is there. 

Acting Chairman Williams. That is on a par with some of the 
others you have offered with no signature. It may be accepted. 


(The letter referred to was marked "Exhibit No. 1255," and is in- 
cluded in the appendix on p. 9243.) 

Acting Chairman Williams. What is your next exhibit? 

Mr. Ingram. My exhibit "M," November 14, 1934; a letter from 
the Pennzoil Co., signed by W. R. Birkmayr. [Reading from "Ex- 
hibit No. 1256" :] 

New Deal Oil Company, 

Canton, Ohio. 
(Attention: Mr. Ingram.) 
It has been called to our attention that you are soliciting dealer business in 
the city of Canton at a guaranteed 4^ margin for one year. 

This is contrary to the accepted structure in that area and under the terms 
of ou. contract you are not permitted to sell our branded merchandise at other 
than our regular posted prices. Inasmuch as your offer of a guaranteed 4^ 
margin is contrary to our policy, we must request that you cease such solicita- 
tion immediately. 

We hope that our information on this matter is incorrect and that you have 
not been making such offers. We are calling it to your attention, however, so 
that you will know definitely w;hat our policy is on such solicitations. 
Yours very truly, 

(Signed) W. R. Bibkmayb. 

Now I would like to go into some detail about this. At the par-, 
ticular time this thing nappened there was a 4-cent margin that 
existed temporarily for dealers. The Monarch Tire Co. of Canton 
were hunting a source of supply, that is they were going to make a 
change from Shell to someone . else. They called me and they asked 
me what kind of a margin I would give them. I told them I would 
give them 4 cents. Well, they weren't sure but what they might 
put in tank car storage themselves and they would let me know. The 
next day I had a telephone call from Oil City from Mr. Birkmayr 
telling me that Mr. Stambaugh of the Standard Oil Co. was just 
raising hell because I had offered a 4-cent margin for a .year, and 
inasmuch as 4 cents was in effect right now it didn't mean for a 
year, and so forth, and I told Birkmayr I was running my own 
businer 3 and would do as I pleased. I was allowed at that time to 
take the contract at whatever price I saw fit, and that is the reason 
for that letter. 

Acting Chairman Williams. It may be received. 

(The letter referred to was marked "Exhibit No. 1256" and is in- 
cluded in the appendix on p. 9244.) 

Mr. Cox. Has anything like that happened recently, in the last 
year? This letter is in 1934. 

Mr. Ingram. Not recently, other than they tell you you will either 
maintain their price or they won't give you a new contract. 

Mr. Cox. How recently was a statement of that kind made? 

Mr. Ingram. Well, they told me that the major oil companies were 
not making contracts with anybody that was cutting price with their 
branded products. 

Mr. Cox. When did they tell you that? 

Mr. Ingram. Not so long ago; I can't say definitely, probably 
within the last 3 or 4 months. 

Acting Chairman Williams. Have you any further exhibits? 

Mr. Ingram. I have one more, a newspaper clipping which I would 
like to read one paragraph of.^ 

^ Not Introduced into the record. 


Mr. Cox. Tell us what newspaper it is. 
Acting Chairman Williams. And the date. 

Mr. Ingram. Plain Dealer Bureau, Akron, Ohio, February 18. 
[Reading date line of article.] This year. 

* * ♦ Robert H. Collacott, division manager for the Standard Oil Co. of 
Ohio, disagree in discussions on the gasoline situation here. 

Collacott said it was to the superstation that the major companies were 
looking more and more as the eventual heavy dispenser of their wares. 

In advocating the lower-margin program, Collacott predicted such benefits to 
the dealers as less chiseling and cut-throat competition, almost complete elimi- 
nation of secret rebates, premiums, and other forms of inducements, less expan- 
sion in the wholesale and retail field and fewer price wars. 

I offer that as evidence 

Acting Chairman Williams. You have just read that in the record. 
There is no need of offering it again, I take it. 

Mr. Cox. What significance do you attach to' that ? 

Mr. Ingram. The significance that I attach to that is that they have 
definitely warned us through the press that if we give rebates, if we 
give premiums, or if we cut the price. Lord help us on our margin. 

Acting Chairman Williams. Any further questions? If not, we 
thank you, Mr. Ingram, for your appearance and your contribution. 

(The witness, Mr. Ingram, was excused.) 

Acting Chairman Williams. The comiiiittee will be in recess until 
2 : 15. 

(Whereupon, at 12 : 40 p. m., the committee recessed until 2 : 15 p. m. 
of the same day.) 


The hearing was resumed at 2:20 p. m., upon the expiration of 
the recess. 

Acting Chairman Williams. The committee will please be in 

]Vtr. Anderson. 

Mr. Anderson. 

Will you be sworn, Mr. Anderson ? 

Do you solemnly swear the testimony you are about to give in the 
matter now pending will be the truth, the whole truth, and nothing 
but the truth, so help you God ? 


Mr. Anderson. I do. 

Acting Chairman Williams. You may state your name, your ex- 
perience, and connections, for the record. 

Mr. Anderson. My name is H. H. Anderson. I am vice president 
of Shell Oil Co., Inc., St. Louis, Mo. I am a graduate electrical 
mechanical engineer from California universities. During the World 
War I served as an officer in the Meteorological Section of the Signal 
Corps. I entered the oil business in 1917 as a field worker with Shell 
in California and, except for the war service, have been with Shell 
continuously since that time. In 1928 I was chief engineer of Shell's 
producing department. At that time I served as national chairman 

124491— 40— pt. 16, sec. 3 11 


of the A. P. I.'s^ technical conmiittee on drilling practice, also as 
chairman of the Los Angeles section of the American Society of Me- 
chanical Engineers; after 1930 was administrative executive in the 
general management. I spent several years throughout the United 
States dealing with matters of internal company organization and 
administrative procedure. 

I served during the year 1934 here in Washington as chairman of 
the labor subcommittee of the oil code authority, or Planning and 
Coordination Committee, and had the privilege of appearing m be- 
half of that code authority before the National Industrial Recovery 
Board during its hearing in 1935 on employment provisions in 
codes. From June 1935 to June 1936 I was temporarily engaged 
in Mexico. 

I have been a vice president of Shell since 1933, with present head- 
quarters in St. Louis, dealing principally with personnel and public 

My undertaking to present to you here a broad picture of the pe- 
troleum industry's employment working conditions follows a sug- 
gestion to me from Mr. Byles. 

Acting Chairman Williams. You are the vice president of the 
Shell Oil Co.? 
Mr. Anderson. One of them. 

Acting Chairman Williams. When and where was that company 
incorporated ? 

Mr. Anderson. Shell Oil Co., Inc., is a Virginia corporation, incor- 
porated March 8, 1917. Shell Union Oil Corporation, the holding 
company, is a Delaware corporation, incorporated February 8, 1922. 
Acting Chairman Williams. It is a subsidiary of the Shell Union ? 
Mr. Anderson. The company of which I am a vice president is an 
operating subsidiary of the Shell Union. 
Acting Chairman Williams. What is your capital stock? 
Mr. Anderson. I am afraid that I can't answer that type of ques- 
tion because I am not very conversant with it. I have no connection 
with the commercial activities of the company and I believe that 
information was filed with the committee. 

Acting Chairman Williams. Do you know how many other sub- 
sidiaries the Shell Union has? 

Mr. Anderson. Approximately, the Shell Co., Inc., handles all its 
integrated exploration, production and refining, and marketing in 
the United States. The Shell Pipeline Corporation handles the 
transportation of petroleum products in the Mid-Continent. 
Acting Chairman Williams. Who owns it? 

Mr. Anderson. Both of those companies are owned 100 percent 
by Shell Union Oil Corporation. It has a 50 percent interest 
in Shell Development Co., a research organization on the Pacific 
coast, and also a 50 percent interest in Shell Chemical Co., a chemical 
manufacturing company on the Pacific coast. 

Acting Chairman Williams. I understand your company, then, 
operates in all fields of the oil industry ? 
Mr. Anderson. In all branches? 
Acting Chairman Williams. Yes. 
Mr. Anderson.^ Yes, sir^^ 

^ American Petroleum Institute. 




Mr. Chantland. Shell Union is the top holding? 

Mr. Anderson. Shell Union is the holding company. 

Mr. Chantland. Top holding? 

Mr. Anderson. So far as American operations are concerned, yes. 

Mr. Chantland. What do you mean by that? 

Mr. Anderson. Well, we are affiliated with the Shell interests else^ 
where in the wodd. The majority of the Shell Union common stock 
is held by the Koyal Dutch Shell interests. 

Mr. Chantland. That is incorporated where? 

Mr. Anderson. -Either Great Britain or Holland. 

Acting Chairman Wn^LiAMS. You may proceed unless someone else 
has some questions along that line. Do you have a prepared statement 
which has been filed ? 

Mr. Anderson. The prepared statement which I have filed was of 
necessity a rather formidable statistical document with a great many 
tables and references to source material, which I felt it was advisable 
to include in order to support the points which I was attempting to 
present. I have, however, prepared a very brief summary of that 
which I would like your indulgence to present to you, together with 
some simplified charts which I feel will give you a quick grasp of our 
'employment situation. 

Acting Chairman Williams. I have in front of me what is a mimeo- 
graphed copy of your statement, which I suppose you offer for the 
record ? 

Mr. Anderson. Yes, sir. I filed the statement. I didn't understand 
that I had to include it in some other fashion. 

Acting Chairman Williams. I am not clear yet as to which statement 
you are referring to. 

Mr. Anderson. The statement which was filed about August 1 was a 
complete statement, of which you probably have a copy there. I have 
askeji to have permission to present a very brief summary of that 
stat^ent, which will give you the picture in the shortest possible time. 

Acting Chairman Williams. I hand you this statement to see if that 
is the statement to which you have reference having been filed by you. 

Mr. Anderson. Yes, sir; this is the statement filed on or about 
August 1. 

Acting Chairman Williams. It may be accepted for the record and 
you may summarize your statement in the manner indicated. 

(Mr. Anderson's prepared statement was marked "Exhibit No. 1257," 
and is included in the appendix on p. 9245.) 

Mr. Anderson. The charts which I am going to present are simplified 
copies of those in the statement. 

Acting Chairman Williams. In other words, it is not your intention 
to introduce these charts which you discuss, they already having been 
introduced ; is that correct ? 

Mr. Anderson. Not in identical form. I prepared some new charts 
recently for the purpose of giving you a little simpler picture of the 
same iiiformation that is in the other charts, and I would like to have 
them included, as I make reference to them in this short summary, 
because they are simpler to comprehend than the other ones. 

Acting Chairman Williams. The point in my mind is, if they are 
duplications I don't see the necessity of having them in the record. 

Mr, Anderson. They are not duplications exactly. 

Acting Chairman Williams. All right, you may proceed. 



Mr. Anderson. An industry, like an individual business, justifies its 
economic form and existence when it faithfully serves a useful purpose 
and distributes its benefits fairly to all concerned. The American 
petroleum industry has continuously given the ultimate consumer more, 
better, and cheaper essential products; it supports the railroads and 
suppliers of other materials and services to the extent of lYj billion 
dollars per annum ; it and its commodity sales raise a substantial share 
of all taxes required by government — ll^ billion dollars last year; 
and its shareholders as a group over a number of years have earned 
less than 6 percent on a total domestic investment of more than 

The industry's increasing and improving supplies of cheap fuels and 
lubricants facilitate the operation of nearly 30,000,000 vehicles in 
motor transportation, carrying the essentials of daily life through the 
arteries of American trade. This development — made cooperatively 
by the petroleum and automobile industries — gives direct and indirect 
employment to over 6,000,000 American workers who support one- 
seventh of our population, and is an immeasurable contribution 
to the American standard of living. 

Announced objectives of the Temporary National Economic Com- 
mittee are the increase of employment and the purchasing power. 
It is my particular privilege to tell what the American petroleum 
industry has done directly in this respect, and of the treatement it 
gives its own employees. It is proud of an unusually fine record, 
achieved with a minimum of industrial strife and without adverse- 
price increases to consumers. Its labor peace, bringing continuity 
of employment, has also brought continuity of liquid-fuel supply. 
Both results have been essential to the national well-being. 

The factual data to be presented have come largely from reports of 
Government bureaus, principally from those of the Bureau of Labor 
Statistics. These are supplemented by data from the special survey 
made by the American Jretroleum Institute for this occasion of a 
number of the larger oil companies who employ nearly a quarter 
million persons, primarily in production, pipe lines, refining, and 
wholesale marketing. 

Certain comparative references are hereafter made to the com- 
posite performance of all manufacturing, and to that of a number 
of other large basic industries. These are automobiles, machinery, 
other chemicals, rubber, iron and steel, bituminous coal, and textiles. 
Public utilities and railroads, being subject to special regulation, 
were considered not comparable. 

These mentioned comparisons are self-evident in various bureau 

Historical improvement : The special survey ^ indicates that dur- 
ing the last 24 years weekly earnings in petroleum operations have 
increased about 60 percent, while weekly working hours have de- 
creased 43 percent. Two and one-third men are now working where 
but one worked before. 

The employer's direct pay-roll cost per man-hour has increased 
about 180 percent, or nearly tripled, since 1914. 

1 Referring to "Exhibit No. 1258," appendix, p. 9299. 


Mr. O'CoNNELL, That chart would also indicate that weekly earn- 
ings of employees have decreased slightly since 1924. Is that cor- 
rect ? Is that the right way to read that line ? 
Mr. Anderson. Yes; that is indicated there. 

Mr. O'CoNNELii. The major part of the 60-percent increase to which 
you refer occurred apparently between 1914 and 1920. 

Mr. Anderson. Yes; although the major part of the cost occurred 
after 1929, on account of the very substantial reductions in working 

Mr. AviLDSEN. In other words, you mean the weekly earnings did 
not rise since that time, but the hourly earnings have gone up? 

Mr. Anderson. Actually, what I have called the "employer's unit 
cost" is the hourly rate. 

Mr. Avildsen. So the worker's average hourly rate is very sub- 
stantially above 1924, even though his weekly earnings are slightly 
below 1924? 

Mr. Anderson. The index in 1924 of the worker's hourly rate was 
about 190, whereas in 1938 it was 280. 

Mr. Snyder. Mr. Chairman,, in order to clear the record, are these 
being introduced and being received? He is discussing them. 

Acting Chairman 'Villiams. That is the understanding, the rea- 
son I asked that question awhile ago, whether or not these were dupli- 
cates of the ones already included in the record. 

Mr. Anderson. For example, this one is not. The information 
is given in the report, but there was no chart introduced to support it. 
Acting Chairman Williams. The information upon which this 
chart is based is already now in the record ? 

Mr. Anderson. Yes, sir. The chart makes a grasp of it much 
simpler, and I would like to have it included. 

Acting Chairman Williams. I think it may be included. 
(The chart referred to was marked "Exhibit No. 1258" and is 
included in the appendix on p. 9299.) 

Mr. Berquist. Before taking that chart away, the employee's 
weekly earnings is average weekly earnings per employee, is it not, 
based upon the 1914 base? That isn't the total wage bill. 

Mr. Anderson. No; that is the individual employee's earnings. 
Mr. Berquist. Does that cover all branches of the industry ? 
Mr. Anderson. I can refer you to the report as to how that was 
determined; as I indicated, that wasn't exactly a weighted aver- 
age. We asked for typical information on those three items in 18 
typical jobs in the various branches, taking what we considered a 
typical job in drilling, a typical job in producing, a typical job in 
field maintenance, a typical refinery operator, a typical refinery main- 
tenance man, and a typical laborer, and so on down the linp. 
Mr. Berquist. Did you include filling-station operators as well ? 
Mr. Anderson. Marketing emploj^ees are in there. 
Mr. Berquist. And no weight was ^iven to the different classifica- 
tions of employment in accordance with their numbers, their actual 
numbers ? 

Mr. Anderson. No; I explained that in the report, that that was 
not a weighted average, because we had no knowledge, historically, of 
the numbers included, but it merely indicated trends. 

Mr. Berquist. A simple average of that kind, including skilled 
labor and all other classes, might be quite misleading as compared 


with a weighted average, particularly in view of the fact that so 
many of them are engaged in, say, distribution, as compared with 
some of the more highly paid skilled technical jobs in, say, the drill- 
ing operations or refinery operations, 

Mr. Anderson. There is just as much chance that you would raise 
proportionately some modestly compensated employee as some who 
are skilled. The general tendency is to increase rates more or less in 
the like proportion of everyone. 

Mr. Bekquist. Well, it is very likely true that a 5-percent decrease 
for filling-station operators would have a greater effect, a greater 
weight, in a composite average, than a 25-percent change in, say, one 
of the skilled occupations. Is that not true? 

Mr. Anderson. Well, I offer the chart for what it is worth. 

Mr. Chantland. I take it you mean it might show a very different 

Mr. Berquist. Yes. 

Mr. Chantland. It wouldn't be misleading if he staled his average. 

Mr. Berquist. Yes, 

Mr. Anderson. All of the information on which the chart is com- 
piled is given in the report and described fully as to how it was ob- 
tained. Inasmuch as we had no knowledge of the numbers of em- 
ployees in the various classifications, and there was quite a substantial 
parity in the general percentage movements amongst the various jobs, 
we felt that that simple average would give some indication of what 
our improvement had been. 

Mr. AviLDSEN. Have you any explanation of the rise from 1929 to 
1938? That is not the hourly rate there, the rate of the employers 
due to labor costs. 

We all think of 1929 as a good year, with good wages paid. 

Mr. Anderson. We must recognize that the employee's pay envelope 
is in effect the product of his hourly rate times his hours worked per 
week, and despite the conditions under which we have had to operate 
since 1929, which was a boom year, we have endeavored consistently to 
reestablish the employees' earnings, and with the reduction in 
working hours from an average of perhaps 54 down to 36, for example, 
in the production, pipe-line, and refining branches^ the only way that 
could be done was to increase hourly rates approximately 55 percent. 

Mr. AvUiDSEN. Are most of these employees paid on a salary basis 
rather than an hourly rate ? 

Mr. Anderson. Practices differ, but, in general, most of the so-called 
wage earners are paid on an hourly basis. The customary hours in 
production, pipe-line and refining operations, are 36 per week, or 156 
per month, and if the fellow works regularly f uH time his montlily pay 
envelope is the product of that figure times hourly rate. 

Mr. Berquist. May I ask one further question? On your line of 
employers' unit labor cost that would indicate, then, the costs per 
laborer were rising much more rapidly than increases in productivity, 
would it not ? 
Mr. Anderson. Yes, sir. 

Mr. Chantland. I would like to get clear on this. You happen to 
be a vice president of the Shell Co,; you use the word "we," You 
are here presuming to speak for the petroleum industry rather than 
your company, and if you use "we" it means the industry unless yr^u 
specify differently? 



Mr. Anderson. I am working under the psychology that I am 
cooperating with the group who came down here at the sugg^estion of 
Mr. Byles ^ to present a broad picture of the industry's conditions, and 
when I say "we" I refer to at least all of the major companies. I 
believe in our labor relations we don't need to differentiate greatly 
between the majors and others for the reason that the major companies 
are not alone in their fine treatment of employees. I also consider 
myself an employee and I feel that anything that has been done has 
been a joint accomplishment of management and the employees. 

Mr. Chantland. I think that is -elear. In other words, you aren't 
speaking now as vice president of the Shell, for the Shell Co. ; 'you 
are speaking for the industry as far as you are able. 

Mr. Anderson. I am trying to present a picture of the petroleum 
industry in toto. 

Many oil companies went through the late depression until Sep- 
tember 1933 without substantially cutting hourly wage rates. Then 
they increased rates almost overnight through voluntary action suffi- 
cient to restore weekly earnings in May 1934 to about 20 percent of 
the 1929 level. Rates and earnings since have increased more than 25 

Petroleum was the only industry in 1938 out of the several compared 
that gave its average worker more actual earnings than he received 
during the boom of 1929. 

I may say that this chart — No. 2, Recent trends, wage, hours, and 
purchasing power, 1929-38 — while not so qualified, represents the 
weighted average of conditions for the production, pipeline, and re- 
fining employees of the larger companies. 

Mr. ChantLm^nd. "What chart, titled what ? 

Mr. Anderson. Chart No. 2, entitled "Recent trends." 

(The chart referred to was marked "Exhibit No. 1259" and is in- 
cluded in the appendix on p. 9300.) 

Mr. AviLDSEN. No marketing of petroleum is in that chart? 

Mr. Anderson. No, sir ; I have information on wholesale marketing 
employees, which is given in tables 3-A, B, and C in the previously 
filed report,^ and I think that study will show that the general trends 
in wholesale marketing at least follow quite closely these figures, 
which were taken as the average of the other three branches. 

I did not attempt to put into these charts the figures on service 
stations' employment for the reason that there have been substantial 
reductions in numbers of direct service station employees amongst 
the larger companies to such an extent that the comparisons could 
hardly be called typical. 

Mr. Berquist. Are those figures based upon Bureau of Labor sta- 
tistics or based upon a special survey? 

Mr. Anderson. Those are based upon a special survey of which the 
details in their entirety are given in tables 4^A to F, inclusive,^ with 
the sole exception that the individual companies are not named. 
And they are extensions of similar charts which were presented be- 
foie the Cole Committee covering the years of 1929, '33, '34, brought 
up to date in this A. P. I. survey for '36 to '38. 

1 Axtell Byles, president, American Petroleum Institute. 
' "Exhibit No. 1257," appendix, p. 9245 at 9289. 
•Appendix, pp. 9291-9296. 


Hourly wage rates as reported by the Bureau of Labor Statistics 
Preferring to "Exhibit No. 1260"], throughout 1938 averaged 98 cents 
in refining and 85 cents in production. The average rate in all man- 
ufacturing was 65 cents. A 92-cent rate was the highest in any of 
the compared industries. 

I would like to explain briefly how this chart works because I shall 
refer to it in the future. 

(The chart referred to was marked "Exhibit No. 1260," and is 
included in the appendix on p. 9301.) 

Mr. Anderson. I have tried to tie together here all of the features 
that go into the annual .figure, and I have shown in turn a compari- 
son of six figures, of which the first one, taken from the special sur- 
vey, is the weighted average of production, pipe line and refining 
wage earners of the larger companies, and the other five, the second 
being production employees, the next refining employees, the next all 
manufacturing, and the next the highest and lowest, of these seven 
compared industries, are taken from the Bureau of Labor Statistics. 
I have just refer?;;ed to conditions in the first block of the chart and 
I will refer to the others subsequently. This is a simplification of 
certain of the "marcel waves" that were in the -other report. 

The larger companies [referring to "Exhibit No. 1259"] report an 
average hourly rate for production, pipe-line, and refinery wage 
earners of 98 cents in 1938 as compared to 64 cents in 1929. That 
is the lower black line there with index on the right side. 

The Bureau reports that the 1938 average entrance rate for coni- 
mon labor in refining is 63i^ cents per hour. The comparative figure 
for all manufacturing was about 21 percent less. Petroleum gener- 
ally pays its unskilled laborers even higher rates after about 6 months 
employment, a practice which enables it to attract new employees 
with better than average educational and physical qualifications. 

If you compare in your minds the 63i/2-cent entrance rate for 
common labor in refining with some of our recent wage and hour leg- 
islation, you will see that we are well in advance of any minimums 
that have been established. 

Hours worked per week as reported by the Bureau — see chart 3 — 
during the months of 1938 varied only between 39 and 40.5 in pro- 
duction, and between 351^ and 37 in refining, or about 2.4 percent 
of the combined average, an outstanding regularity compared to 
most of the other industries with variations ranging from 7 to 35 
per cent of the average. 

The larger companies now a-dhere quite closely to 36-hour sched- 
ules in the operating branches, and to 40-hour schedules for whole- 
sale marketing and office workers. Since 1929 the working hours in 
those companies of production, pipe-line, and refining workers — see 
chart 2 — have been reduced 32 percent, those of wholesale marketing 
workers 20 percent, and those of office workers 8i/^ percent. 

I may say that those varying reductions came about through the 
effort to meet the indicated- requirements of the Petroleum Code, as 
promulgated September 2, 1933, which set 36 hours per week as the 
average hours in the three field branches and 40 as the average hours 
in wholesale marketing and office work. It also set 48 hours in serv- 
ice stations. 


Petroleum has made a noteworthy effort to adhere to the spirit of 
the old N. I. K,. A. employment provisions and the present trends 
toward moderate working schedules. 

Most striking are petroleum's relatively high weekly earnings and 
their unusual regularity. According to Bureau reports [referring 
to "Exhibit No. 1260"] average 1938 weekly earnings of production 
and refining wage earners were nearly $34.50 as compared to 33 per- 
cent less in all manufacturing, and a spread between 13 and 54 percent 
less among the other industries. The larger companies reported 
$35.80 in these branches. Bureau data indicate that not one of the 
annual averages of weekly earnings in the compared industries ex- 
ceeded or even equalled production and refining in any of the last 9 

Average 1938 weekly earnings in petroleum, as reported by the 
Bureau, were about 31/2 percent above the 1929 averages. On the 
other hand, the 1938 average in all manufacturing was nearly 7 
percent below that of 1929, and none of the compared industries 
had reestablished its 1929 average. 

According to the larger companies [referring to "Exhibit No. 
1259"] petroleum employees earned about 5 percent more per week 
in May 1938 than in 1929, an increase made despite the substantial 
reduction in working hours during the same period. Inasmuch as 
the May 1938 cost of living was only 84 percent of the 1929 cost, the 
so-called real wage or individual purchasing power of these employees 
in 1938 exceeded that of 1929 by about 25 percent. 

His actual earnings increased 5 percent, the cost of living compared 
to the 1929 index of 100 was 84 percent, and this divided by this 
gives you the so-called real wages or purchasing power, approxi- 
mately 125 percent of the 1929 level. 

The monthly employment volume in petroleum, as re])orted by 
the Bureau, during 1938 was quite steady, that in refining fluctuating 
between months only 2 percent and in production only 5 percent from 
the annual averages. On the other hand, that in the compared indus- 
tries fluctuated more widely during the year, in one case as high as 
41 percent. Monthly pay rolls of the several industries in general 
fluctuated about the same as employment. 

Good planning in the petroleum industry brings its unusual regu- 
larity of employment. For example, looking at chart 4 we see that 
refiners can store several months' stock of refined products and despite 
wide seasonal fluctuations in product demand, they can either run to 
or withdraw from storage and thereby schedule daily crude runs to 
stills at almost uniform year-round rates, thereby substantially level- 
ing out year-round employment. 

(The chart referred to was marked "Exhibit No. 1261" and is 
included in the appendix on p. 9302.) 

These black lines — lower third of chart, top section — represent 
the monthly averages of the demand for motor fuel, residual fuel oil, 
and gas oil and distillate fuel. 

Acting Chairman Williams. You are now referring to the chart 
entitled "How we level employment"? 

Mr. Anderson. Yes, sir. The green sections indicate periods when 
the production is in excess of the demand and the excess is run into 


storage. The pink section — in middle of chart, below heavy black 
line — indicate those periods when the demand is in excess of the 
production and there are withdrawals from storage to meet the 

This line — middle third of chart — shows the, oil average crude 
run to stills, and while it looks jagged on the chart, you will see 
the change throughout the year is only slightly between 31 and a 
little over 321/2 hundred thousand barrel units per month. If this 
scale had been brought down to 100, this line would look pretty 

The upper section of the chart, the employment index in refining 
as reported by the Bureau of Labor Statistics for the several months 
of the year 1938 and '39 in turn fluctuated from only about 98.3 down 
to 94.4, which other than for a slight trend to decline was fairly 
straight, in fact unusually straight so far as annual regulation of 
employment in the industry is concerned. 

Considerable leveling out of seasonal variations in wholesale mar- 
keting employment has followed the development in northern States 
of domestic fuel-oil business to replace winter reductions in gasoline 

In the few years past, when it began to freeze over in the North 
and everybody put their cars away in the garage, the job in the mar- 
keting department reached quite a low ebb, but with the development 
of domestic fuel oil, facilities which had been used for the through- 
put of gasoline were changed to handle the fuel oil and volume was 
built up so that there has been quite a substantial leveling out of 
wholesale marketing employment through that practice. A special 
study of 1935 

Acting Chairman Williams (interposing). Eight in that connec- 
tion, do you mean there is a difference in the production of the fuels 
and the gasoline, and that that varies according to the season ? 

Mr. Anderson. There is a difference in the demand. For example, 
you want gasoline to drive your automobile in the summer, and you 
want fuel oil to heat your house in the winter. The relative per- 
centages produced are approximately the same throughout the year, 
but in the summertime fuel oil is run into storage and gasoline is 
withdrawn from storage, whereas in the wintertime, gasoline is run 
to storage and fuel oil is withdrawn from storage. 

Acting Chairman Williams. Your production, then, is fairly uni- 
form, and it is a question of storage? 

Mr. Anderson. That is right, and of planning your month to month 
crude oil runs to stills, so that you have the least seasonal variation 
in your working force. 

Mr. Chantland. You are like the man who sells ice and coal, 
are you? 

Mr. Anderson. That's right; quite similar. 

Mr. Berquist. That Bureau of Labor Statistics Employment In- 
dex — that is for the whole industry, including marketing ? 

Mr. Anderson. No; that chart deals only with refining showing 
how they have leveled out employment in refineries. 

A special Bureau study of 1935 reported actual annual earnings of 
refining employees to be $1,415 as compared to 25 percent less in all 
manufacturing. Based on Bureau annual averages of weekly earn- 


ings, computed annual earnings [referring back to "Exhibit No. 
1260"] for 1938 in refining were $1,815 as compared to 34 percent 
less in all manufacturing, and from 19 to 53 percent less in the com- 
pared industries. 

An analysis of the 1935 earnings of 240,500 employees of the larger 
oil companies was compared to the analysis made by the National 
Resources Committee of 39,000,000 individual income-tax returns. 
Only 8 percent of those employees earned less than $1,250 as com- 
pared to 59 percent for the national total. The $1,250 to $3,000 range 
included 83 percent of the petroleum employees, and only 34 percent 
of the national total. Among the larger companies, all wage earners 
as a group in 1938 averaged $156 per month, and the office and super- 
visory group averaged $207 per month. 

This chart, entitled "Spread of Income," comprises a spread of two 
features; one, the number of people involved, and the other side the 
aggregate earnings, in brackets. These brackets, in general, cover 
$250 increments. 

(The chart referred to was marked "Exhibit No. 1262" and is in- 
cluded in the appendix on p. 9303.) 

Mr. Anderson. Now, as stated in the longer report,^ this admittedly 
is not a strictly fair comparison, because one segregation is on the 
basis of earnings as reported to the Treasury, whereas the other is net 
income as reported to the Treasury, and the comparison is of interest 
although not exact. But the one point that I was anxious to bring 
out is the healthy distribution of earnings in the industry, the fact 
that in order to get these, figures we don't have to average horses and 
rabbits'to get .some figure in between that has no relation to either. 

Mr. Berquist. May I ask one more question on what is included, 
Mr. Anderson, in that 240,500 of total employment. Would that in- 
clude all the production, refining, and transportation? 

Mr. Anderson. It is every employee of that group of companies. 

Mr. Berquist. Including marketing? 

Mr. Anderson. Every employee. 

Mr. Berquist. And that is ba'sed, of course, upon your own 

Mr. Anderson (interposing). That came from the special survey; 
yes, sir. Annual earnings measure the employee's economic fortune, 
but hourly wage rates measure the relative cost to the employer of his 
man-hour units of labor. Except as the employer is able to introduce 
other forms of operating economy, each increase in hourly rates brings 
an increase in production costs. 

Mr. Berquist. May I ask one 6ther question before you leave that 
chart? Do you know what percentage of that 240,000 represented 
in that distribution is made up of marketing employees or retail 
employees ? 

Mr. Anderson. I haven't the exact number as applied to the total 
number of companies that we were able to get comparative informa- 
tion oil because in some of these instances where we didn't have the 
complete record back through to 1929 we eliminated all data which 
weren't comparable, but in this particular instance, where we asked 
meiely for a 1938 position, we were able to get a higher coverage that 
wc :Could.use than certain comparisons that we have shown clear 

■Exhibit No. 1L'")7," appendix, p. 0245. 


through. Actually, as of 1938, based on a smaller coverage, there were 
201,500 employees, except service stations, and 9,600 employees m 
service stations. • -i j: 

Mr. Berquist. So your percentage would be in the magnitude of 
between 3 and 4 percent represented by service-station employees, if 
that proportion held in this. 

Mr. Anderson. Nearly 5 percent. 

Mr. Berqutst. That would be 3 or 4. 

Mr. Anderson. Nine and one-half to two hundred would be pretty 
nearly 5. 

I can state, however, that the average weekly earnings of the service- 
station employees of these companies in 1938 was $26.64, which we can 
compare with $35.80 as the average for the production, pipe-line, and 
refinery workers. In other words, their earnings averaged about five- 
sevenths of the others, so, if you take 41/3 times $26.64, you get some- 
where around $115 a month as the average earnings. 

Mr. Berquist. Those are employees on day or hourly basis ; they are 
not lessees in any sense. 

Mr. Anderson. No ; they are strictly employees usually compensated 
on a monthly basis. 

Mr. Berquist. And they should not be confused, then, with the 
income that might be derived by service-station lessees. 

Mr. Anderson. No; although we shouldn't draw any conclusions 
that the others may not be as well off. 

Mr. Berquist. I just wanted to be sure which you were using. 

Mr. Anderson. As I stated a moment ago, except as the employer 
is able to introduce other forms of operating economy each increase 
in hourly rates brings an increase in production cost. To accomplish 
the reported establishment by the larger companies of better than 
1929 earnings for employees in 1938, the direct man-hour cost of 
production, pipe-line and refining work, as indicated by chart 2, 
was increased 54 percent. That of wholesale marketing work was 
increased 33 percent, and that of office and supervisory work was in- 
creased 151/^ percent. That again reflects the point made a fe\y 
minutes ago, that we had endeavored to work toward a reestablish - 
ment of pay envelope or period earnings in setting these changes in 
wage rates. 

These substantial increases in unit labor costs were not passed on 
to the consuming public, however, as the record shows that the aver- 
age ex-tax service stations price of gasoline was reduced 21^ percent 
during the 9-year period. 

Mr. O'CoNNELL. That computation, I take it, doesn't take into 
account other operating economies that might have been achieved in 
the same period. I mean would it necessarily follow from what you. 
said that those increases in production costs were not passed on ? 

Mr. Anderson. Naturally, your service-station price of gasoline is 
the net result of the entire activity, but obviously the increase in 
unit-labor cost was very substantial, and despite that there is a very 
healthy reduction in these consumer prices. 

As to labor turn-over, according to the Bureau, refining shows the 
lowest quit rate or measure of voluntary separation of any compared 
industry. Only one of the compared industries shows comparable 
discharge and lay-off rates. Among employees in the larger oil com- 
panies, 35 percent have more than 10 years of service. 


Even this healthy figure is adversely misleading because of the 
industry's rapid growth and the decrease in v^eekly working hours 
since 1929, both of which factors have necessitated recent hirings. 

Complete information on the present and historical volumes of em- 
ployment and pay rolls for petroleum is not available. Various 
Government bureau reports give merely incomplete coverage of some 
of the branches. As examples, the United States Bureau of Labor 
Statistics data exclude most office and supervisory workers. The 
Census Bureau's survey of retail marketing in 1935 excluded earnings, 
or entrepreneurial withdrawals, of 180,000 retail filling proprietors, 
most of whom were full-time workers, and the Census Bureau en- 
tirely abandoned its census of petroleum marketing in 1937. 

The Interstate Commerce Commission data on pipe-line employ- 
ment include only that on interstate lines. It is of interest also that 
the Government statisticians disagree occasionally. As one example, 
the United States Bureau of Labor Statistics indicated that employ- 
ment in production decreased 2% percent from 1935 to 1936, whereas 
the United States Bureau of Mines report states that "the increase 
was about 15 percent in 1936 over 1935." 

A very recent W. P. A. study now reports an increase of 9.8 per- 
cent. As another example, the United States Bureau of Labor Sta- 
tistics indicates that 1937 pay rolls in refining exceeded those of 
1929 by 171/^ million dollars, whereas, the Census Bureau reports an 
increase of only 9i^ million. Such disparities in official statistic? 
leave all interested parties in a quandry. The fact that published 
data do not parallel available operating activity indices supports 
the conclusion that either the sampling is not representative or the 
coverage is incomplete. 

The figures of the reporting larger employers also suffer from 
certain disregarded conditions. For example, their 1929 rolls in- 
cluded 10.2 percent of their employees who were engaged in extraor- 
dinary construction work, and not norm'ally subject to retention 
after its completion. As of May 1938, about 47,000 employees of -rig- 
building and drilling contracts were at work for all producers in the 
oil fields. About 9,400 were serving the larger companies, a figure 
to be compared with 2,500 in 1929. None of these were reported by 
the producers for whom the work was done, and few if any con- 
tractors' employees were counted by the United States Bureau of 
Labor Statistics in its routine reports. 

Despite the combined effect of the two conditions just described, 
the reported number of direct employees for 17 of the larger com- 
panies in all activities except retail service stations was 201,500 in 
1938, or approximately 93 percent of the 1929 total. 

Based on May as an average month, the annual pay rolls were 
almost exactly $420,000,000 in both years, showing in 1938 a complete 
resumption of 1929 direct labor costs. The combined direct real wages 
or purchasing power provided by these companies' in 1938 was 18.8 
percent above that in 1929. 

Mr. Berquist. Do you think there is any greater validity in those 
figures than the figures of employment that you cited awhile ago ? 

Mr. Anderson. Taking account of the fact that there are cer- 
tain features in them that are not comparable, nevertheless these were 
the exact reported pay-roll outlays of these companies, so that the 
statement is correct as it is given. 


Mr. Berquist. Would you summarize by saying that the official 
statistics that are gotten out on the petroleum industry are quite 
vague and possibly inaccurate in many respects ? 

Mr. Anderson. They are vague to the extent that they do not 
always jdefine their coverage. They are of questionable validity from 
a historical basis, because comparatives can only be made successfully 
on identical establishments, and it is not practical in trying to make 
long-range comparisons to always carry ahead the same number of 
estalDlishments, as for example, we get from the United States Bureau 
of Labor Statistics each month, a percentage which shows the trend 
of employment; there is one month compared to the next, but if you 
try to tie that thing way back down to 1929 it is impossible, as indi- 
cated by the fact that they will not give out the base data for their 
100 percent in 1929 in production. 

Mr. Berquist. As you know there was no census of mines and quar- 
ries taken in 1929. That was one of the industries of the whole decen- 
nial census that was omitted. It had been taken in 1919, 1909, 1902, 
and 1890. I wonder if you would suggest we ought to have a good 
accurate census of the petroleum industry so that these facts we arc 
dealing with -might be resolved on a more or less accurate basis. 

Mr. Anderson. I might suggest that regardless of what you find 
out tpday you aren't going to help the historical situation, but we will 
put ourselves in a much better position for the future. 

I might also comment that a great many employers are spending a 
considerabl amount in the wages with certain of their employees to 
prepare these statistics which are furnished to the Government 
bureaus, and if it were practical to modify those slightly so as to get 
a little more comprehensive information, we would all be better in- 
formed with very little extra work. 

Mr. Berquist. For the lecord, I understand that the act for the 
1939 census also omits a canvass to be tjtken for the petroleum in- 
dustry as in 1929. 

Mr. Anderson. Of course, we have no way in the industry that we 
can undertake these things except in certain simple attempts of this 
kind where only a few companies are requested to furnish some sta- 
tistics, but I am quite sure that there are. several of the men in the 
industry who would be glad to discuss some of these matters with the 
Bureau officials and see if a better ultimate result couldn't be gotten. 

Mr. Berquist. You would also personally urge tnat a compre- 
hensive accurate census be taken in this decennial census they are 
now planning? 

Mr. Anderson. I believe it would be in the. public interest to have 
that information. 

Dr. LuBiN. Mr. Anderson, I am interested in your chart, particu- 
larly that line which shows employers' unit labor costs. Just what 
does that figure show ? 

Ml-. Anderson. That is the hourly rate. 

Dr. LuBiN. Is it fair to call it unit labor cost ? 

Mr. Anderson. It is the man-hour labor cost. 

Dr. LuBiN. But that is quite different from unit labor cost. Isn't 
it true that the unit labor cost has been going down steadily in the 
past 5 years of the industry ? 

Mr. Anderson. According to what your unit is. 


Dr. LuBiN. Unit of production, gallons of gasoline, gallons of 
lubricating oil, gallons <xf fuel oil. 

Mr. Anderson. I call it man-hour unit. It is debatable as to what 
you want to label it, I might have said hourly rate and there would 
ifiave been no cgntroversy. It is our cost of having a man work an 

Dr. LuBiN. Does it mean anything? 

Mr. Anderson. Why, certainly. 

Dr. LuBiN. After all, you are interested in what it costs you to 
produce products, aren't you ? 

Mr. Anderson. That is right. 

Dr. LuBiN, What difference does it make, then, what it costs you 
to employ a man an hour or for 10 minutes? WTiat you are really 
interested in is what you pay him to produce a given number of 
units of goods, 

Mr. Anderson. Well, I venture to say the man's interest is in 
what he gets for his hour and I think we have a common interest. 

Mr. AviLDSEN. I think, Dr. Lubin, I might explain that while you 
were absent Mr, Anderson presented this chart to show not what 
their costs of production are, or anything of the sort, but rather 
bow the workers come out. This is to show how the workers come 

Dr. Lubin. The chart says "employers' " unit. 

Mr. AviLDSEN. I agree with you that is not good terminology, I 
think it would have been better to have said average hourly rate 
paid employees. 

Mr. Anderson. That is right, employers' labor cost per man-hour. 

Dr. Lubin. What percentage of your workers are time workers, 
or are paid by the hour ? 

Mr. Anderson. If I can refer to the industry's totals, the indus- 
try's totals as reported by the larger companies show 150,000 so-Called 
wage earners as against about 59,000 office and supervisory , em- 
ployees, so it is somewhere around 70 percent. 

Dr, Lubin, Of those wage earners how many are paid by the hour 
on straight hourly rates ? 

Mr, Anderson. Well, in the light of my limited knowledge of the 
subject, I would say that most companies pay hourly rates to their 
wage earners in production, pipe lines, and refining and monthly 
rates to their employees in marketing. 

Dr. Lubin. There are no piece rates in the industry ? 

Mr. Anderson. Occasionally we have piece rates for such activities 
as cleaning out stills where an employee is anxious to get the job 
done in the quickest possible time and we are equally anxious to have 
it done, but it is a very uncommon practice. It may be, also, in 
certain places where they can oil or make candles, or things of 
that type, that they have piece rates, but it is not common. There 
has been a trend toward, to a certain extent, the payment of monthly 
wages to certain employees in production operations and in certain 
very junior supervisory jobs, and I believe two or three of the 
larger companies pay more monthly wages .than they do hourly 
wages, but you couldn't characterize it as a typical practice. 

Dr. Lubin. How would you account for the sudden qjiange — to me 
it is rather sudden, it is a period of 5 years — in labor conditions in 


the petroleum industry ? Here is an industry that 10 years ago 
was operating on a 55-hour week, which even in those days was high. 
Then by 1934 they had gotten down to a 36-hour week. That 36-hour 
week came into effect how? Why the sudden change or improve- 
ment in labor conditions? 

Mr. Anderson. The improvement, at least the change in the work- 
ing hours, was the result of a combination perhaps of sharing the 
work as advocated by Mr. Hoover and a finalization on 36 hours in 
field operations under the petroleum code. 

Dr. LuBiN. In other words, then, the so-called improvement in 
labor conditions, the high standards that prevail in the industry, and 
nobody will deny they are as high as prevail in almost any industry,' 
you will admit is a relatively recent thing, isn't it ? 

Mr. Anderson. On an industry-wide basis that statement is cor- 
rect, although it is true that amongst individual companies and for 
example quite generally on the Pacific coast they had attained rela- 
tively low-working hours as early as 1929. 

Dr. LuBiN. Even in '29 when prosperity was supposed to exist here 
was a big industry paying 33 cents an hour on the average, ac- 
cording to your chart. 

Mr. Anderson. The hourly rates are on the other side. 

Dr. LuBiN. The hourly rate is that black line, is it not? 

Mr. Anderson. Yes ; but that refers to the index on the right, not 
the left. 

Dr. LiTBiN. Oh, I am sorry. * 

Mr. Anderson. Sixty-four and a half cents is the 1929 hourly rate. 

Dr. LuBiN. But it was operating on a 55-hour basis, back in 1933 
it was operating on a 45-hour basis. 

Mr. Anderson. That is right. 

Dr. LuBiN. Can you tell us for the record what proportion of 
the workers in this industry are organized, let's say in refineries, 
first the industry as a whole and then refineries? 

Mr. Anderson. If you define "organized" I will try and answer 

Dr. LuBiN. Members of the trade unions that come within the 
certification of the National Labor Relations Board, in other words, 
independent trade unions. 

Mr. Anderson. Do you mean the C. I. O. and A. F. of L. only? 

Dr. LuBiN. Yes. 

Mr. Anderson. In refining amongst the larger companies and giv- 
ing each plant credit for a 100-percent coverage where it has formal 
agreements, I would say that 13 14 percent of our employees are in 
the C. I. O. and 6.1 percent in the A. F. of L. 

Dr. LuBiN. That is for the industry as a whole. 

Mr. Anderson. That is a coverage of 80 percent of the refinery 
wage earners. 

Dr. LuBiN. In other words, 19 percent approximately are organ- 
ized, of refinery workers? 

Mr. Anderson.-- Yes ; of which 2 percent represents increase in the 
last 4 years. 

Dr. LuBiN. Do you know how many of these companies in this 
chart have collective agreements with trade unions? 

Mr. Anderson. Well, that percent covers all the employees of 18 


Dr. LuBiN. Well, how many of those companies have collective 
agreements with trade unions? 

Mr. Anderson. I didn't count my figures that way. I merely took 
the total number of employees that were included without reference 
to the number of companies. I don't think that is an equitable way 
to look at it for the reason that every company might have an 
agreement, but one might be company-wide and the other might cover 
a few crafts in one plant. 

Dr. LuBiN. Do you know how many of those companies have col- 
lective agreements covering workers in the refineries as a whole, that 
is on an industrial basis? 

Mr. Anderson. Out of 128 refineries I believe there were about 

20 plants with C. I. O. agreements and 7 plants with A. F. of L. 

agreements, which had any substantial coverage. That still doesn't 

■answer your question, but I don't remember any summaries on a 

company basis. 

Dr. LuBiN. When did the unions become active in the industry ? 

Mr. Anderson. I would say that they have had members in the 
industry for a great many years. 

Dr. LuBiN. The crafts have, no doubt; I mean your blacksmiths, 

Mr. Anderson (interposing). And the oil workers. 

Dr. LuBiN. Have you any idea, though, as to what the member- 
ship was, let's say, in 1933 as compared to today? 

Mr. Anderson. Zero. There were none on a formal agreement 

Dr. Ltjbin. Is" there any relationship between the fact that the 
union became active in '34 and '35 and those figures- on your chart? 

Mr. Anderson. There may be. We are only attempting here to 
show the composite accomplishment of the industry, which hns come 
about through years of historical friendly relations between the 
mariagement and the men, and which were on an exceptionally high 
basis even in 1929, and relatively high in 1933." As to what effect 
the eritrance^ of the two organizations into our plalits has had, as 
distingujshea from what might have happened without their entrance, 
I am not in position to evaluate. 

Dr. LuBiN. The reason I ask is, as you stated a minute ago, in 
1929 to 1934 the industry isn't one which you would characterize 
as having very high labor conditions. In other words, an industry 
that operates a 55-hour week isn't operating in terms of modern labor 
conditions on what you would call a terribly high plane. 

I notice that at the present time, conditions in the industry arc 
very, very ^ood, equal to and better than those that prevail in the 
large majority of industries in America, a higher wage rate, lower 
hours, more regular employment, and I think the industry should be 
congratulated on that fact, and that fact should be admitted. I am 
wondering, however, as to now far the industry itself was responsible 
for this sudden betterment that came about su4denly, according to 
that chart, in conditions and how far this was the result of an at- 
tempt to organize the workers in the industry, and successful 
organization m the plants. 

Mr. Anderson. Well, I would say that the getting to the 36-hour 
week was a Government fiat. 

Dr. LuBiN. The unions had something to do with that, though. 

124491— '^O — pt. 16, sec. 3^^12 


Mr. Anderson. Perhaps they did. 

Dr. LuBm. Under the N. R. A. the unions were represented in the 
negotiations that led to the 36-hour week. 

Mr. Anderson. That's right, but I didn't take part in any activities 
here before the code was promulgated. I am not acquainted with it. 

Dr. LuBiN. All I am attemptmg to show — ^I ani not saying thfe 
industry isn't to be congratulated on these conditions. I wonder, 
however, whether the unions operating in the industry aren't also to 
be congratulated, in part, for the conditions that prevail in the 
industry; incidentally, conditions of which they are terribly proud, 
and of which they boast? 

Mr. Anderson. If you will permit me to read a short prepared 
statement which I wrote after you gave me an indication that you 
were going to ask me this question, I think I can answer your whole 
question more comprehensively than I have done. 

Acting Chairman Williams. If it is in answer to the question, 
go ahead. 

Mr. Anderson. A few days ago Dr. Lubin told me that he pro- 
posed to ask me (i) to what extent employees in the refining branch 
of the industry are working under union-labor agreements, and (2) 
what effect this unionization has had in the establishment of our 
favorable present-day wage levels and working conditions. 

I had tried during the preparation of my statement to confine 
myself to the presentation of industry accomplishments, and to avoid 
all fruitless or indeterminate questions of cause. Bureau statistics 
have been quoted to prove that the relative freedom, of our industry 
from disruptive strikes has been outstanding, and I made the broad 
statement that our achievements — 

reflect the continued strajghtforward and cooperating attitude maintained by 
both management and employees in dealing with their mutual problems. 

Starting in 1918, larger employers on both the east and west 
coasts encouraged the formation by their employees of associations 
for collective bargaining, and the relatively high wage levels and 
working conditions extant in the industry prior to the N. I. E. A. 
indicate the sincerity of our employers in working harmonitously 
with these associations or employee-representation groups. 

Thanks to section 7 (a) — that well-known provision born with 
the N. I. R. A., carried into the Petroleum Code, and revived in the 
Wagner Act — ^these simple and effective bargaining organizations 
were maligned by organized labor and some were ruled to be illegal 
by the labor boards. Nevertheless, they served well the employees 
of the oil industry prior to their final dissolution when the Wagner 
Act was passed. • 

Now, to answer the first part of Dr. Lubin's question: Prior to 
June 1, 1934, when one large oil company signed a Nation-wide open- 
shop agreement with the Oil Workers' International Union (now a 
C. I. O. unit), there were no known formal union agreements in 
force in refineries of the larger companies. In March and April 
1935 this same company signed a Nation-wide open-shop agreement 
with A. F. of L. crafts unions covering its employees who were mem- 
bers of those unions. A total of about 4,900 wage earners are today 
employed in the refineries of this company. 


Following Dr. Lubin's query, I made an informal survey of con- 
ditions in 128 refijieries of 18 of the larger companies employing 
66,657 wage earners in May 1938. This covers about 80 percent of 
the refinery wage earners in the industry. Counting all emplbyees 
in all reported refineries where formal union agreements are now 
in force, a total of 9,054 employees are covered by C. I. O. agree- 
ments and 4,116 are covered by A. F. of L. agreements. These num- 
bers, totaling 13,170 employees, represent, respectively, 13.6 and 6.1 
percent of. all employees reported. It is of interest to note that 
since June 1935 the two organizations have made agreements in 6 
refineries of the larger companies including less than 3,000 employees. 
In addition to the places where formal agreements are in force, the 
C. I. O. or A. F. of L. is recognized as a collective-bargaining agency 
in 10 refineries employing 4,023 employees. 

The formation of independent unions by refining employees has 
been quite popular since January 1937, and today there are reported 
by these larger refiners a total of 53 plants with 34,100 employees 
where formal agreements with independent unions are in force. 

We will have to clear up our use of the word independent. If 
you will understand these to mean not aflSliated with the old-line 
unions, or not in the C. I. O. and A. F. of L., that will qualify my 
use of the word. Thid latter includes 53 percent of the total employ- 
ees in the 128 refineries. 

I obtained the statistical information herein presented on the basis 
of personal contact and an agreement not to release individual com- 
pany details. However, I am offering for the record a chronological 
chart showing a summary of the information received. 

(The chart referred to was marked "Exhibit No. 12f 3" and is in- 
cluded in the appendix on. p. 9304.) 

Mr. Anderson. In reply to the second part of Dr. liubin's question, 
I n\9,y say that any attempt to evaluate the effecit of this post — 
N. J. R. A. unionizatioif in the establishment of present-day condi- 
tions — will be one of mere opinion or conjecture whether it be done 
by myself, Dr. Lubin, or one of our good union friends. I offer a few 
items as- a basis for an opinion. 

A careful study of Bureau statistics of comparative "vyeekly earn- 
ings, etc., made effective prior to June, 1934 — and even in 1929 — in- 
dicates that this industry was characterized by unusually fine condi- 
tions before "uny C. I. O. or A. F. of L. agreements were made. The 
friendly employer-employee informal bargaining arrangements in 
effect as far back as 1918 are not to be overlooked. 

Much of the improvement in hourly rates made effective between 
September 1933 and May 1, 1934, were voluntary, and in most in- 
stances went substantially beyond an arbitrary wage order promul- 
gated by Secretary Ickes on May 21, 1934. 

In few, if any, of the unioii agreements signed by the larger re- 
finers was any substantial wage mcrease a consideration. 

In few, if any, of the few strikes reported at 'the larger refineries 
was the matter of wage increases a. substantial issue. 

In other/industry branches not as prevalently unionized as refining, 
the improvement in wages and hours has been just as good as in re- 
fining, as is borne out by the following tabulation, which I have just 


handed you. In other words, considering the weekly earnings, the 
hourly rates and hours per week in the three branches as they have 
changed in total between May 1933 and May 1938 they are in essence 

(The tabulation referred to was marked "Exhibit No. 1264" and 
is included in the appendix on p. 9304.) 

Mr. Anderson. I am afraid I cannot give Dr. Lubin the answer he 
wants, but I feel I express the views of the larger employers generally 
when I say that we are proud of the wage record of our industry and 
of the fact that we have been able to pay such good wages, as well 
as to reduce prices to consumers, and still earn our stockholders a 
return on their investments. All of this has been made possible by 
our technological advancement, the benefits of which we have tried, to 
distribute equitably amongst those concerned. I do not mean to con- 
vey the thought that all of these unions, C. I. O., A. F. of L., and the 
independent ones, have not been instrumental in bringing about im- 
provements in working conditions and wage rates, but I want to im- 
press upon this committee the undisputed fact that management in 
all the oil industry has always taken pride in its labor record, be- 
lieving that it is good policy to pay high wages because of the morale 
thereby established and the additional service rendered by the em- 
ployees. I have given you som^ factors there, and you will have to 
make your own conclusions. 

Dr. Lubin. I think the conclusion is self-evident, that the labor 
conditions in the industry are very, very good. 

Mr. Anderson. It is true. Dr. Lubin, that perhaps the hours worked 
per week in 1929 and on into the earlier part of the depression were 
fairly high, but I think you will agree with me that in the terms of 
labor psychology of less recent date, the average earner was inter- 
ested in how much he could get in his pay check, and that most 
comparisons of what constituted good wages v(ere on how much he 
carried home every week rather than on exactly how many hours he 
had to work to get it. 

I made the statement here in an earlier part of my paper — and 1 
can't put my finger on it now — that in no one of the last 9 years has 
any of the seven 'industries with which our record was compared 
equalled the earnings given in the petroleum industry. 

Dr. Lubin. On a weekly basis? 

Mr. Anderson. On an annual average of weekly basis, which of 
course wauld be the fair way to make it. So what we have done more 
recently, to my mind, shows no unusual trend in employer psychology 
or employer attitude. Our position was just as good relatively m 
1929 as it is today, with the exception that we have since made 
slightly better increases in hourly rates. It is of interest, however, 
I think, that the hourly rates have certainly gone up faster than 
man-hour productivity in that period.. 

Mr. O'CoNNELL. On that point, I am not suce that what you said 
a few moments ago would give us a little different answer to that, but 
it seems to me you indicated a little while ago that taking 17 oil com- 
panies, their total wage bill, so to speak, in 1938 was almost exactly 
what is was in 1929. - 

Mr. Anderson. Yes. 


Mr. O'CoNNELL. You don't have any figures on the production of 
those companies, do you, as to whether they have grown or their 
production has increased ? 

Mr. Anderson. Have you my set of tables there ? Table 2-J ^ 
represents a very loose attempt to determine activity indexes in terms 
of total out-turn of the industry in various branches, in terms of 1929 
equals 100. I might say that I don't want to overwork the year 1929, 
but that happens to be the basis taken for indexes in the nonmanu- 
facturing branches of the Bureau of Labor Statistics, and while it 
was an abnormal year, that very fact makes it a good one to shoot 

Mr, AviLDSEN. Are you talking about the 2-J table? Do we have 
such a thing? 

Mr. Anderson. It is in my previously filed report. They didn't 
reproduce the tables with my report.^ I don't know why I was 
selected for that distinction, but maybe I put in too many of them. 

For example, 23 percent more wells were drilled in 1937 than in 1929. 
There are 10 percent more wells producing in 1938 than in 1929. The 
volume of crude oil produced was 20.4 percent more. In pipe line 
transportation, with the last figures in 1937, it was 12.6 percent more 
mileage operated and 11.4 percent more barrels transported. In re- 
fining, there was 18 percent more crude refined, 27.8 percent more 
motor fuel produced. In marketing, there was 36 percent more motor 
fuel delivered, and there were 10.7 more motor vehicles served. 

How you are going to take those and make something out of it is 
hard to tell, but if you go right straight down the line, we will say 
the average improvement in activity is perhaps 18 percent, whereas 
the restoration of 1929 employment as reported by the larger com- 
panies is 93 percent. Again we come into a consideration of these 
figures which show you the hopelessness of considering certain pub- 
lished figures on productivity. 

Mr. O'CoNNELL. I think we are probably getting a little far afield. 
My question was originally that since you had given us, or had been 
able to get the exact pay roll cost of 17 individual companies for the 
year 1929 and the year 1938, I thought that if you happened to have 
or had been able to get the exact pay roll cost of 17 individual com- 
panies for the year 1929 and the year 1938, 1 thought that if you hap- 
pened to have production figures for the same companies for the same 
years, it might be some indication as to the productivity of labor 
which you had referred to generally. But if you haven't the figures, 
there is no use in speculating on it. 

Mr. Anderson. I will be glad to read you a brief on that subject 
because it is a very good one — a very good subject, perhaps not a good 

We must recognize that certain changes in operating technic, par- 
ticularly in refining, have increased the per man-hour productivity of 
labor. In this respect, the producing and manufacturing operations 
of the oil industry are perhaps not much diiferent than those of other 
progressive industries. 

^Included in "Exhibit No. 1257," appendix, p. 9283 .„ »4.., .;■* v ... , ,. 

" Mr Anderson refers to a mimeographed press release. All or the data submittpd by 
him are included in his prepared statement, appendix, p. 9245. 


It has been estimated from various Bureau statistics that the bar- 
rel output or throughput per man-hour between 1929 and 1937 in- 
creased 261/2 percent in production, 11 percent in pipe lines, and 63 
percent in refineries. 

It is of interest to note, however, despite these seemingly alarming 
trends, that the larger company direct pay rolls as of 1938 reflect a 
reduction of only 7 percent in total employment compared to 1929, 
and no reduction in total annual earnings. 

It is of further interest to note that these technological improve- 
ments have changed the composition of the working force so that an 
increasing percent of skilled labor and a decreasing percent of un- 
skilled labor is being required by the industry. In support of this 
I give a case analysis recently reported by one large oil company. 

In its refineries, between 1929 and 1938 the number of skilled 
workers increased from 27 to 52 percent of the total wage-earner 
force, whereas the number of unskilled workers decreased from 25 
to 12 percent. The, number of semiskilled workers decreased from 
48 to 36 percent. 

In its producing operations, between 1935 and 1938 the number of 
skilled workers increased from 21 to 29 percent of the total wage- 
earner force, and the number of semiskilled workers increased from 
54 to 59 percent, whereas the number of unskilled workers decreased 
from 25 to 12 j)ercent. 

I beg your indulgence to quote three paragraphs from a recent 
W. P. A. research publication on petroleum employment: 

(1) The changes in the technical process of refining have been attended by 
important economies in unit labor requirements. * • • Despite such labor 
saving, employment has shown a general long-time growth, and in 1937 — the 
latest year for which statistics are available — it wias above the previous all- 
time high of 1929. The constantly increasing demand for petroleum products 
apparently has more than offset the decrease in labor requirements per barrel 
of crude oil charged. 

(2) The unit labor saving achieved by added improvements in technology may 
be counterbalanced entirely or partly by other factors in determining the volume 
of employment. The Fair Labor Standards Act may multiply emplojTnent oppor- 
tunities faster than the prospective growth of marketing requirements tend to 
indicate. Under proration, for example, most companies have had to hire 
additional field men, more technicians have been needed to direct the operation 
of wells at restricted rates of flow, and more clerical employment was provided 
as the needs for records multiplied. Technical and clerical personnel was also 
recruited for State agencies charged with the administration of laws and 

"We might recall Colonel Thompson's testimony,^ that he had 'over 
400 technical experts in his department built up lender the needs of 
proration in the State of Texas. 

Mr. O'CoNNELL. You wouldn't call those industry workers, would 
you? That sounds like an expansion of government. 

Mr. Anderson. That is true, but it came about through the fact 
that our industry was in existence and brought that emplo3rment into 

(3) Although the outlook is for increasing employment opportunities, the 
influence of technology in modifying the composition of the working force, is 
expected to continue. The demand for unskilled labor in most branches of /the 
industry is disappearing rapidly. The trend is now towards trained technicians 
and skilled and semiskilled w^jrkers, and away $rom the floating crews of 
roustabouts that formerly comprised most of the industry's working force. 

1 Incliiderl in Hearings, Part 15. 


Mr. O'CoNNELL. On my particular question as to the productivity 
of labor, I guess we can agree that labor in the oil industry, as in 
industries, is constantly becoming more productive. 

Mr. Anderson. Yes, sir ; that is right, and I quoted in here certain 

Dr. LuBiN. Mr. Anderson, is one to deduce from those figures that 
this change in hourly rate is really not so much the result of increased 
wage rates as a shift in the type of labor force from the lower-paid, 
unskilled, and semiskilled to more and more a larger proportion of 
your working force being in the highly skilled groups? 

Mr. Anderson. That has had some effect, unquestionably, all of 
which is given account in these over-all averages. As I pointed out, 
however, in connection with the preparation of chart 1, which was 
compiled from an unweighted average of information back to 1914, 
where the individual described job was carried clear through the 
periods under consideration, we find approximately that same reflected 
improvement in wage 'rates which I have called the employer's unit 
labor cost. If you read the longer reports, you would perhaps recall 
the manner in which that information was obtained bj' a summary of 
the reports of typical job rates from the 17 or 18 larger companies 
covering about 18 specified jobs. 

Mr. AviLDSEN. Mr. Anderson, the figure, employer's unit labor cost, 
chart 2 ^ ; is that a weighted average ? 

Mr. Anderson. That in chart 2 is a definite weighted average of 
production pipe line and refining wage earners. 

Mr. Avildsen. Of 18 companies, or how many companies? 

Mr. Anderson. It includes companies with a total employment 
of about 210,000 men. As I explained to Mr. Berquist, we 
solicited this information from approximately 20 companies, but in 
our endeavor to carry all comparisons back to 1929 we were forced to 
discard certain ones — at least 2 of them — 1 of which reported a reor- 
ganization right after 1929 that made its 1929 figures useless, and 
another 1 who wasn't able to give us the break-down we requested into 
oflSce and supervisory employees and wage earners in the 4 branches. 
But this does cover a weighted average of approximately 101,315 

I might say that that data was all made up from the columns show- 
ing the totals of production, pipe lines, and refining in tables 3 A, 
B, and C.^ 

Mr, Avildsen. I would like. to get back to this question of unions. 
Do I understand that the C. T O. and the A. F. of L. have organized 
workers only in the refining end of the business, or have they organized 
some of the production employees as well ? 

Mr. Anderson. They have organized some employees in the other 
branches. Dr. Lubin said that he would be satisfied to have the 
information on refining only, and he may have had in mind that there 
is perhaps more percentage unionization in that branch than in the 
other branches. 

Mr. Avildsen. Is that your opinion — that there is a smaller per- 
centage of unionization in the producing and pipe line as distin- 
guished from refining? 

Mr. Anderson. That is a horseback estimate; yes. 

1 "Exhibit No. 1259." appendix, p. 9300. 
> Appendix, p. 9289. 


Mr. AviLDSEN. You are not sure? 
Mr. Anderson. I am reasonably sure; yes. 

Mr. AvLLDSEN. I think it might be significant for this reason — that 
according to this statement you gave, headed "Interbranch wages and 

hours comparison" ^ 

Mr. Anderson (interposing). I made the statement that unioniza- 
tion in those branches wasn't as prevalent as in refining. Those are 
the facts as I understand them. 

Mr. AviLDSEN. I say it might be significant, because it seems that 
the production and pipe-line employees have had greater increases 
since 1933 than the refinery employees have had, which would seem 
to indicate that the greater union activity in refining did not bring as 
great increases as the production and pipe-line employees received. Is 
there any significance in those figures ? 

Mr. Anderson. I don't believe the effect of that organization 
on the establishment of those rates is substantial, pro or con. Of 
course, you must recognize that this industry was already in a pretty 
healthy condition. relatively, and it is pretty hard to find flaws — at 
least in our wage system — which are subject to very much complaint 
other than minor individual cases or leveling out occasionally of 
inequities between what two or three men are doing with respect to 
other men, and where those cases have been brought to attention they 
are usually immediately leveled or taken care of. 

I have had the pleasure of being acquainted with executives in this 
industry who have had a voice in these matters for a long time, and I 
know that as a group they have always tried to do the right thing by 
their employees. Most of them came into their present positions the 
hard way and have always appreciated the employee's point of view. 
Most of us like to feel that we are employees and that through these 
various bargaining arrangements, of which the entrance of the old- 
line trade-unions was only a variation, these matters have been the 
subject of discussion between employers and employees in more or less 
organized forms for years ; in fact, to my knowledge for 21 years on 
both coasts. 

Mr. AviLDSEN. Mr. Anderson, about these independent unions, you 
and Dr. Lubin seem to understand what they are and if your formal 
statements cover an explanation of them I won't ask you to go into an 
explanation of them here but I think for the record we ought to have 
some explanation of what these independent unions are that you show 
on this chart headed "Unionization in Refineries of Larger Oil 
Companies." - 

Mr. Anderson. Those are organizations which have been formed by 
the employees of their own volition and without any interference or 
coercion of any part of their managements. 

Mr. AviLDSEN. Do the men who run those unions spend all their 
time on jobs in these different plants? 

Mr. Anderson. It varies according to how big they are and what 
their problems are. 

Certain of these unions were formed voluntarily by the employees 
while under considerable solicitation by the old line unions. 
— , 

1 "Exhibit No. 1264." appendix, p. 9304. 
' "Exhibit No. 1263," appendix, p. 9304. 


Dr. LuBiN. Some of these have been actually certified to, haven't 
they, by the National Labor Kelations Board ? 

Mr. Anderson. Yes, sir. Of course, in the old days before the prac- 
tice was conceived to be illegal, the employer made it possible for the 
men to meet with him on company time and helped them to defray 
certain minor expenses in connection with the meetings, and was 
presumed on that account to exercise great influence over their think- 
ing. I don't believe that was the case and I don't feel that the fine 
results which came about under that old system can be belittled to 
any extent. I have no fault to find with the present conditions, and 
perhaps some of these present independent unions — which were the 
outgrowth of the older forms of organization after a complete disso- 
lution — are in a position to bargain more effectively, but it is rather 
hard to see that it has made very much difference. 

Mr. O'CoNNELL. Are those older organizations to which you refer 
-generally known as company unions ? 

Mr. Anderson. We usually heard them called employee representa- 
tion plans. 

Mr. O'CoNNELL. Do you understand there is such a thing in common 
parlance, or has been, as company union ? 

Mr. Anderson. I don't like to use that word because it involves two 
different concepts. You can have an employee representation plan 
where the company took part in it and you can have one of these inde- 
pendent unions that included only the employees of one company. 
That might be called in casual parlance a company union. 

Mr. O'CoNNELL. I take it it is a phrase that is used in casual parlance. 

Mr. Anderson. Well, Mr. Mencken's book ^ indicates that parlance 
varies considerably, and this is a much bandied term. Some of them 
had what we call joint representation where the committee actually 
comprised members of the management, selected by the management, 
as well as members selected by the employees. Others were from their 
outset completely formed by and of the employees. The extent to 
which the formation may have been coercive was a matter of opinion. 
However, I am certain that all of the groups reported in this survey 
are of the type of which several have been certified by the National 
Labor Kelations Board. 

Mr. O'CoNNELL. If they were of the type I would think of when I 
refer to company union I take it they would probably be unlawful. 

Mr. Anderson. You still have the old representation plan in 
your mind as a company union, Wliile we have always had the 
friendliest relations in the industj"y with the C. I. O. and the A. F. 
of L., we haven't conceded to them the sole privilege of being con- 
sidered unions in the proper legal sense. 

Mr. O'Connell. Was the old provision of section 7A^ about the 
right of employees to bargain collectively through representatives of 
their own choosing carried over in effect into the National Labor 
Relations Act ? 

Mr. Anderson. In effect it reads approximately the same, although 
there are more restrictive provisions as to penalties for employer 

^ H. li. Mencken : "The American Language." 
' Of the National Industrial Recovery Act. 


Mr. O'CoNNELL. I mean substantive right. 

Acting Chairman Williams. With reference to your chart here,^ 
as I understand it, the independent unions represented during the 
year 1935 and '36, about 20 percent of the employees, and during the 
year 1937 rose to 60 percent. What is the explanation of that sud- 
den rise of the independent unions? 

Mr. Anderson. I think that it perhaps was an attempt in these 
groups, which consider themselves to all intents and purposes to 
have previously been bona fide unions, to reassert themselves after 
the passage of the Wagner Act and to take on a more formal charac- 
ter. In other words, this survey gave no count of representation 
plans in the earlier concept. 

Acting Chairman Williams. As I recall, the Wagner Act was 
finally declared constitutional by the Supreme Court in March, I 
believe, of 1937, and it seems that immediately following that, accord- 
ing to your plat, there was a very sudden rise in those unions. I 
don't know whether that has any connection or not. 

Mr. Anderson. I don't believe that in essence it was any more 
than an attempt of numbers of these associations which had perhaps 
felt themselves dissolved in their earlier form under the act, to take 
new form on a strictly legal basis, and it j)erhaps is approximately 
a measure of the extent of these representation plans in effect before 
they were considered illegal. 

Acting Chairman Williams. You don't think, then, their plan of 
organization changed any during the year 1937; they simply con- 
tinued their form of organization that they had maintained before 

Mr. Anderson. No; I say that I believe that in general the same 
employees were involved, but whatever shortcomings there may 
have been in their earlier form of organisation they took action on 
their own volition to correct and asked the company to enter into 
agreements with them. Now the basis of Dr. Lubin's question was 
to. what extent are these employees covered by agreements, union 
agreements, and that is the basis of this count, and there were none 
considered as such except as they developed through these unions 
which constitute themselves free and independent, devoid of any pos- 
sible question of control by the companies. 

Acting Chairman Wiixiams. Do I understand from your general 
statement here that there are no reliable statistics giving the amount 
of employees in the different categories of the oil industry, for, in- 
stance engaged in production, transportation, refining, and 
marketing ? 

Mr. Anderson. There are statistics, but in almost all of them the 
exact coverage is not determined. 

Acting Chairman Williams. Has there been nothing like a reliable 
break-down of those figures? 

Mr. Anderson, I believe that the United States Bureau of Labor 
Statistics' figures in refining are very near to the correct picture as 
regards the total employees in that industry. On the other hand, it 
is not certain when you consider those figures whether they only 
contain so-called wage earners or at, what level in the scale of office 
employment or supervisory employment they may cut off. In the 

1 "Exhibit No. 1263." 


Bureau of Mirres-eurvey, for instance, the question is wide open as 
to the amount of employment by independent contractors. There 
have been several estimates made, and perhaps the Mines survey in 
1937 was a fairly good count. 

Acting Chairman Williams. I have in mind trying to ascertain 
the number of people there are engaged in this industry throughout 
this country. Is there any figure that is reliable at all, or even a 
substantial guess at it? 

Mr. Anderson. The American Petroleum Institute has endeavored 
to make a consolidated estimate of employment, and this recent W. P. 
A. study has endeavored to make consolidated estimates for 1937 

Acting Chairman Williams. What is that estimate ? 
Mr, Anderson. I don't recall exactly what the W. P. A. estimate 
had. Incidentally, the publication to which I am referring I think 
came off the press only a couple of weeks ago, entitled "Technology, 
Employment, and Output per Man in Petroleum and Natural Gas 
Production. A W. P. A. National Research Project and Department 
of the Interior, Bureau of Mines." 

Of course, this book is really a compilation of about all of the sta- 
tistics that are available, including the United States Bureau of Labor 
Statistics as well as others. 

It is our general opinion that there are approximately a million 
employees who more or less directly earn their living in the petroleum 
industry. That includes employment in between 200,000 and 225,000 
service stations, and a small count per outlet in approximately one 
hundred-some thousand retail outlets where the sale of gasoline is 
not the primary sale. 

Acting Chairman Williams. All right. Your estimate, in your 
opinion, is that there are a million. Have you that same opinion as 
to how many are engaged in the production end of the industry ? 

Mr. Anderson. Yes, sir ; I can give you an approximate break-down 
of that figure. 

The most recent general estimate is that prepared by the American 
Petroleum Institute and issued in its Petroleum Facts and Figures, 
a booklet which it gets out recurrently. They estimate 156,400 people 
in producing, taking account not only of wage earners but also of 
oflSce and supervisory employees in each of these branches; 29,599 

in pipe lines ; 12,000 in marine 

Acting Chairman Williams (interposing). Twelve thousand in 
what? : 

Mr. Anderson. Marine — tanker operations; 98,451 in refining; 124,- 
798 in wholesale marketing; 402,800 in service stations, and approxi- 
mately 182,000 engaged in outlets where gasoline is marketed and 
which might take the time of approximately that many people in 

Now, extending those numbers by what we feel would be reasonable 
average annual earnings, we reach an annual wage bill of slightly 
over a billion and a half dollars per year, and that is taking account, 
in the service stations, of average earnings of $106 per month, and in 
these miscellaneous outlets of about $87 per month. The other figures 
are on the basis of major-company figures. 

If I may proceed, I can close my formal statement here very 
quickly; I touched on that matter. 


Acting Chairman Williams. I was under the impression you had 
finished. I beg your pardon. Go right ahead. 

Mr. Anderson. Dr. Lubin got me into a very interesting subject, 
one I know we are all interested in, but which perhaps we haven't 
yet resolved. 

I want to mention, while here on this subject, just one other prob- 
lem with respect to the determination of this employment, and that 
is the tendency in the industry to shift to contract work. It has 
been a very substantial trend in the last 10 years. . It has come to my 
attention recently that even in routine oil field maintenance work 
out in the areas where wells can be produced under proration that 
with only a small portion of the total 24; hours on the piunp, numbers 
of companies have sprung into being who will contract the mainte- 
nance of those wells, and for those employers who use that service 
the payment for that work would be covered by a voucher check 
and not show up on their pay roll, and any employer who uses those 
services, who was a regular reporter of statistics to bureaus, would 
automatically tend to show less employment than he actually was 

To cite a case with which I am familiar, in refinery construction 
it was much more common in 1929 to do construction work with 
your own employees than to contract it. But with the continued 
trend toward processes involving more complicated technics, and spe- 
cially constructed equipment, there have come into being numbers of 
reliable construction companies who can undertake to contract a 
plant for you and give you a turn-key job of it if you want it. At 
the present time my own company is undertaking a $5,000,000 con- 
struction program at Wood River, and we find that it is easier for' 
us to contract a very substantial part of that work on a turn-key 
basis than it is for us to undertake the various administrative prob- 
lems that are involved in doing it ourselves, because these con- 
tractors are set up to do that efficiently and they move from job to 
job and can quote attractive prices. They come on our property, they 
usually pay the going wages, and there is no fundamental intention 
on our part to reduce employment; it is merely that it is a simpler 
way to handle it. 

But the net result is that our reported pay-roll figures don't reflect 
all the employees of those contractors that we are, in effect, giving 
employment to. 

Another thing which has very badly upset these historical ]gela- 
tionships in our bureau statistics. is the unusual wave of construction 
work that was in effect, for example, in 1929, where some of these 
index figures are as high as 100 percent. 

We happened during the Oil Code, in connection with a study we 
made, to solicit a number of the larger employers to find out how 
many of the employees, as of May 1929, were engaged in extraordi- 
nary construction work not subject to retention after the job was 
finished, and, for example, in the 4 branches, out of 58,709 production 
employees, there were 6,408 of them on special construction work. 
In pipe lines, out of 16,744 there were 4,116, or almost 25 percent 
of the force, engaged in actually building new pipe lines as distin- 
guished from operating and maintaining pipe lines. 


In the refining, out of 59,332 there were 13,800 employees doing 
strictly new construction work. In marketing there were very few, 
out of 66,017 there being only 697. 

But if we try to merely compare one period with the next without 
taking account gf the various elements that go into these figures, we 
are always left pretty much up in the air as to how to draw con- 

Dr. LuBiN. Also, this very marked effect in 1936, when yon shifted 
from operating your own stations to leasing them out. Automatically 
those people disappeared from the pay rolls of the oil industry. 

Mr. Andekson. It so happens, however, in that instance, that there 
was no agency that that employment was reported to. It may have 
been, however, that that shift had something to do with the problems 
with which the Census Bureau was confronted in trying to carry 
through with their census. 

I just covered the next matter in my sunmiary. 

The Oil Code Authority in 1934 prepared an estimate of industry 
total employment and annual direct pay rolls. I refer to the industry 
in its broader aspect, as including all retail outlets. A review of the 
1934 study indicates that the figures developed for the marketing 
branch were perhaps too high. However, subsequent upward trends 
among the larger companies in other branches of several percent in 
employment and about 25 percent in pay rolls led to the conclusion 
that, including all service-station proprietors and their entrepreneu- 
rial withdrawals, 1,000,000 workers and one and one-half billion dol- 
lars annual earnings are conservative estimates of industry employ- 
ment and pay rolls today. 

Much has been heard of actions of the larger supplying companies 
between 1935 and 1938 to lease out numbers of service stations to ex- 
employees or others on an independent dealer basis. The extent of this 
activity has been greatly overemphasized, however, inasmuch as prob- 
ably not more than 16,000 stations out of an estimated total of more 
than 300,000 retail gasoline outlets in the United States have been 
changed. And most of the compai^ies had similarly leased out large 
numbers of such stations for some time before. 

The employment and earnings in service stations today are matters 
that can be determined only by estimate. The larger companies re- 
port weekly" earnings for service-station employees of $26.64 with a 
48-hour week, in 1938, as compared to $24.35 with a 54-hour week in 
1933. Data on employment at about 220,000 independent servipe sta- 
tions cannot be obtained readily for this report. 

With respect to the 16,000 stations where the form of operation 
has been changed since 1934, a composite estimate of 7 of the larger 
suppliers indicates that there was an averag( of $260 per month per 
station available in 1938 to compensate the proprietor and his em- 
ployees, as compared to direct labor payments of $239 per station under 
company operation in 1934. 

Now, the summary of those estimates is shown on page 44 of my filed 
statement, and the detail of the estimates of the seveji companies is 
shown in table 2-T.^ The basis of the statement was to take the actual 

1 Appendix, p. 9289. 


1934 labor bill, which averaged $239, to compare that with the 1938 
operation where the gross normal margins, plus the revenues from 
miscellaneous services, were shown as total receipts from which were 
deducted rents paid and miscellaneous expenses. 

Mr. Berquist. Which set of companies were those,' Mr. Anderson? 

Mr. Anderson. Standard of Indiana, Standard of Kentucky, So- 
cony-Vacuum, Continental, Shell's Midcontinent organization, and 
Shell's Pacific coast organization. 

Mr, Berquist. What 2 years do you compare? 

Mr. Anderson. 1934 before this shift started and 1938. 

Mr. Berquist. What was the average margin that you used in cal- 
culating 1938? 

Mr. ANDERsbN. I can only report the products on a monthly 
basis, as they gave them to me. This tabulation is one that I would 
accept as being made in good faith, and that is about the only way that 
we can accumulate and give this information for what it is worth. 
I am sure that we have no intention of trying to. create erroneous 

Mr. Berquist. I hark back to what Mr. Swensrud ^ indicated, the 
impression that the average margin of service stations for the retail^ 
sale of gasoline had declined between those years. 

Mr. Anderson. Perhaps it did, but I was reporting margins as they 
existed in 1938 as compared to direct pay-roll outlay in 1934, where 
any Question of margin was a matter between the major company 
and those «^ith whom it dealt — not with the service-station man 

Mr. Berquist. Your conclusion, is, then, that what was available for 
wage payments in 1938 was greater than actual wage-payment require- 
ments in 19B4. 

Mr. Anderson. Do you mean wage-payment performance? 

Mr. Berquist. How do you differentiate that? 

Mr. Anderson. I mean what was actually paid. You can call that a 
performance or requirement, as you please. 

The special survey indicated how since 1900 the industry has con- 
tinuously improved the security of workers through timely adoption 
of various supplementary benefits, such as paid vacations, pension and 
thrift plans, pay while in jury service and on summer military duty, 
group disability and life insurances, safety, health, and social welfare 
programs, severance pay, cost-free medical service, provision for hous- 
ing on isolated properties, and so forth. 

It is of interest that the group life-insurance plans of 18 of the larger 
companies have in force more than $624,000,000 in death benefits, the 
companies paying part or all of the premiums on more than half of 
this coverage. Nearly $2,000j000 of weekly benefits are in force under 
^oup accident and sickness insurance plans. Mutual benefit associa- 
tions in these companies cover a quarter of the employees. Most of the 
reporting companies voluntarily continue at least partial wage? for 
part or all time lost on account of disability. 

An important addition to the above-quoted total labor cost is the 
substantial expense of these supplementary benefits. Including social 
security, the larger companies now are carrying an indirect pay-roll 

^ Sidney A. Swensrud, vlcv president, Standard Oil Co. of Ohio, whose testimony appears 
in Hearings, Part 15. > 


cost of about 12 percent, which will increase to 15 percent during the 
next lO.years under the present laws affecting social security. 

Dr. LuBiN. Mr. Anderson, in your second paragraph you are refer- 
ring to time lost on account of disability, irrespective of accidents, are 
you not? 

Mr. Anderson. Disability, either occupational or nonoccupational; 
yes, sir ; and that, too, supplementing workmen's compensation insur- 
ance, which almost every employer must carry anyhow. 

M-. O'CoNNELL. You refer to the 15 percent increase in indirect 
pay-roll cost during the next 10 years. 

Mr. Anderson. It will increase to 15 percent. 

Mr. O'Connell. Yes ; from 12 to 15. Is that all attributable to legis- 

Mr. Anderson. That is the change in the contributions under the 
Social Security Act which are still to move ahead. 

Mr. O'CoNNELL. Will your contributions under the Social Security 
Act amount to 15 percent of your pay roll within the next 10 years? 

Mr. Anderson. I didn't say that. I say that the present 12-percent 
overall cost of these indirect benefits will go up 3 percent when social 
security takes its full swing. 

Mr. O'CoNNELL. I understand, but is all of the 15-percent increase 
attributable to legislation? 

Mr. Anderson. I say only 3 percent increase. 

Mr. O'CoNNELL. You drew your own inference from the statement 
indirect pay-roll cost will increase to 15 perceiit. 

Mr. Anderson. From 12. 

Mr/ O'CoNNELL, So only a portion of the 15 total increase is due to 
legislation. '^ 

Mr. Anderson* Only social security. We didn't count compensa- 
tion insurance. 

Mr. O'CoNNELL. Some of it voluntary aijd some ot it involuntary. 

Mr. Anderson. I have just stated all of these things, starting in 
1900, this feort of benefit coming about this year and then gradually 
spreading generally throughout the industry, and then another bene- 
fit, ill fact, I pretty much cited them in their chronological introduc- 
tion as you will note from one of the appendixes in my report. 

Dr. Ltjbin. Mr. Anderson, I am anticipating what you are going 
to say later in regard to safety. Have you any idea what workmen's 
compensation costs in terms of pay roll, in refining? You say you 
didn't include them in these supplementary benefits. How expensive 
an item is it in the industry ? 

■ Mr., Anderson. I say we haven't included them in those. Other 
than social security, these 'are benefits which are beyond legislative 
insurance which haven 'tf been included in this bunch. 

Dr. LuBiN. Workmen's compensation is an expense? 

Mr. Anderson. Oh, yes. 

Dr. LuBiN. And it is part of your pay roll in a sense. If you 
didn't employ the person, you wouldn't have to pay che insurance 
for him. 

Mr. Anderson. I believe my questionnaire asked them to exclude 

Dr. LuBiN. Have you aiiyi idea how the industry rates ? Accident 
rates have gone down very fast, but in terms of your premium rate, 
is it high or low? ' 


Mr. Anderson. That again is one of those questions to which you 
get diametrically opposed answers. Perhaps in our offices we have as 
low a rate as any industry. On the other hand, in rig building and 
drilling it is extremely high. May I ask if anybody can tell me how 
high the rates are in rig building? In the nature of 16 percent? 
They are extremely high because ri^ building in itself is quite a 
hazardous occupation, but in generalities they are not abnormal, and, 
of course, we are getting the benefit of a record of good practice in 
-the determination of our reserves which happen to be set up under 
the usual manner in which we carry these policies. 

Dr. LuBiN. I am very much interested in that problem because we 
hear so much talk about the cost of social insurance and so little about 
the cost of workmen's compensation, and in some instances workmen's 
compensation costs are so far in excess of social-security costs and you 
rarely hear any talk about them. I was interested to know whether 
it is a really important factor in your pay roll. That 16 percent — 
of course, there are a number of people in rig building, but taking 
the industry as a whole I wondered whether it would run, as an esti- 
mate, 2 or 3 percent of your pay roll, taking the industry by and 
large, say production, refining, and marketing. 

Mr. Anderson. I am sorry to say I don't have that figure, but I will* 
be glad to get it for the record by tomorrow.^ 

The industry has done much^to improve social conditions as well as 
working conditions for its employees. Millions of dollars have been 
expended for housing employees in locations not adjacent to towns. 
Good houses and other facilities are provided at low rental rates. 
Schools, medical departments, emergency hospitals, registered nurses, 
etc., are provided by many companies in their centers of concentrated 

Petroleum has done an outstanding job in the field of accident pre- 
vention, greatly reducing the hazards peculiar to the industry through 
engineering and educational methods. Also unusual attention and 
assistance has been given to the prevention of accidents on the high- 
ways. A recent United States Bureau of Labor Statistics report states 
that the petroleum refining frequency rate decreased nearly 67 percent 
in the 6-year period, 1930-36, and that — 

there is a good reason to attribute this highly satisfactory experience to careful, 
continuous, and comprehensive safety work on the part of management in this 

Employers in the petroleum industry have always taken pride in 
the friendly and harmonious relations which have existed with their 
employees. The 5-day strike in St. Louis service stations late in 1933 
was the first strike of any consequence recorded in tlie industry for 
13 years. The second strike of the same group in 1934 was declared 
outlawed by the Government's Petroleum Labor Policy Board. Ac- 
cording to the United States Bureau of Labor Statistics, the annual 
averages in refining for the 5 years 1933-37, inclusive, show that there 
was only one strike per 17,500 employees, with but l.*9 percent of all 
employees striking, and with less than 6-10 man-days per employee 

iMr. Anderson supplied the information in a letter dated October 25, 1939, whicli was 
marked "Exhibit No. 1422" and is included in the appendix on p. 9372. 


This record is outstandingly low when contrasted to that of any 
one of several comparable industries. Today we find only two strikes, 
both in refineries, in progress. But one of these, involving only 250 
men, is being disruptive to operations in. the plant involved. Strikes 
in other branches of the industry have been even less in frequency and 
consequence than those in refining; in fact, until the recently con- 
cluded marine strike there have been practically none except a few 
scattered ones in marketing. 

The achievements of the industry in harmonious labor relations re- 
flect the continued, straightforward, and cooperative attitude main- 
tained by both management and employees in dealing with their 
mutual problems. They have come from the simple expedient of rec- 
ognizing through the years, ■ without pressure, the right of labor to 
a fair share of the proceeds of business, by minimizing for workers 
the effects of economic cycles and seasonal demands, and by predicat- 
ing employment policies on the rule that no organization or industry 
can rise above the condition of those who comprise it. 

These forward-looking policies have been appreciated by a loyal 
and intelligent employee body, well aware of their preferment in the 
common effort to advance the standard of living. The combined 
effort and ingenuity of the industry's employees of all ranks have 
given the general public essential services, unselfishly conceived and 
faithfully rendered. 

Acting Chairman Williams. Have you finished your statement? 

Mr. Anderson. That is the conclusion of my summary of my filed 

Acting Chairman Williams. Have any of the committee any ques- 
tions to ask? If they have, if they are of any length, we had better 
wait until tomorrow. 

Mr. AvLLDSEN. I have one question. In the fourth paragraph of 
the .paper you iust read under the heading "Volume of Employment 
and Pay Rolls, you speak here about the combined direct real wages 
or purchasing power provided by these companies in 193b was 18.8 
percent above that of 1929. 

Mr. Anderson. Yes, sir. 

Mr. A\TLD8BN. I notice on this chart No. 2 it shows, purchasing 
power was 25 percent above 1929. 

Mr. Anderson. This is the condition with respect to the individual 
worker, whereas the figure of 18.8 percent was determined following 
the statement that 'the annual earnings — ^I mean the annual pay rolls 
in both years were almost exactly $420,000,000, and if we take 100 
percent as our index of actual wages and divide that by 84 percent, 
which is the cost of living, we get 118.8 percent as the index of pur- 
chasing power. That is 18.8 percent above the combined 1929 
money outlay of these larger companies on a, strictly comparative 
basis. In other words, in summary, despite the difficulties with which 
we were faced through the depression, we have reestablished numbers 
of employees on our pay rolls to within 7 perceftt of 1929 levels ; we 
have completely reestatjlished total annual pay-roll outlays to the 
1929 level, and we have contributed to the purchasing power, taking 
account of the cost of living by increasing. the 18.8 percent above 

124491 — 40— pt. 16, Bee. 3 13 


Mr. AviLDSEN. It still isn't clear to me why one figure should be 
18 and one 25. 

Mr. Anderson. That is because of the difference in the number of 
employees involved. In other words, we have only 93 percent of 
the number of employees to each 125 percent of their 1929 individual 
purchasing power. 

Mr. AviLDSEN. That clears it up. 

Acting Chairman Wiijliams. Any other questions? 

Mr. Berquist. Mr. Anderson, we have heard it said several times 
in this hearing that service-station operators after changing over to 
the Iowa plan from the status of being employees to that of inde- 
pendent operators, their earnings have been reduced because of the 
diminishing margins. I take it from what you have said that you 
do not agree with the statements that have been made here that as 
independent operators these filling-station men are not receiving as 
good an income as they were when they were direct employees of the 

Mr. Anderson. I am not aware of the sources of the other state- 
ments to which you allude, and I must plead my lack of direct knowl- 
edge in the matter, but I have cited this as the composite reply of 
seven large companies to a very specifically worded question which 
they were asked to answer. I have set down the seven replies indi- 
vidually and have averaged them numerically to get those figures, 
and that is all I can say with authenticity. 

Mr. Berquist. The conclusion of that is the reverse of what we 
have been told by some of these witnesses. I just wanted to call that 
to the attention of the committee and also give you a chance to com- 
ment with anything you want to say as to statements of that ki'nd. 
We had Mr. Crouthamel yesterday ^ and we had a witness here this 
morninof, and I think several of the witnesses have alluded to that 
fact. Your response to that is that you do not agree with that posi- 
tion based upon your findings from those companies. 

Mr. Anderson. Of course, in this particular respect J am only re- 
porting the results of that questionnaire which w^as sent out. My 
personal knowledge of it is not very complete, because I am not in the 
marketing branch of the industry ; but I think you must take account 
in this matter, as you must take account of so many matters where 
witnesses who have a relatively small compass in which to form their 
opinions ofttimes lead to conclusions which won't stand the test on a 
broad basis. 

We must admit that even though a certain company in 1934 oper- 
ated a thousand service stations and paid $239 per mouth on the aver- 
age to each one of them, and had a schedule of monthly salaries for 
those employees so that in generalities each manager got, for an argu- 
ment, $120 a month, and each second man got $105, and each third 
man got $95, regardless of where the station was or other conditions, 
and then consider the present condition in those thousand stations, 
where it can be truthfully said that the total amount available for 
the labor bill in those stations is substantially more than it Avas before, 
you will find that due to the difference in the location and th©- sales 
opportunity of those stations and the ability of the men on those 
stations to stimulate business for themselves, there is going to be quite 

1 p. 8934, supra, et seq. 


a different spread in the distribution of that total earnings than took 
place under company operation. 

Another thing, too, that you must consider, that taking the average 
station and giving the dealer the $2^0 — was that the figure? They 
have taken these sheets away ^ and I am without benefit of clergy for 

the minute 

Dr. LuBiN. (interposing). $260. 

Mr. Anderson. We will say the average dealer; that is, the man 
with whom the company has the business arrangements and made it 

possible for him to have in hand $260 — is that it ? 

• Mr. AviLDSEN (interposing). Yes. 

Mr. Anderson. He has in his uncontrolled discretion the distribu- 
tion of those earnings between himself and any numbers of employees 
that he chooses to have, and it is not unlikely that in a great many 
instances he, perhaps, felt that, with all the business risk, and so forth, 
which he may rightfully feel that he is taking, he would Ijke to keep 
just a little bit more of that $260 than he received as a salaried man- 
ager, and the employees on his station might thereby get less per 
individual than before, and there are 101 individual variations 
of that type of thing which could cause a local complaint, perhaps 
justified within the point of view of the individual, that still should 
not in any way lead to the conclusion that on the over-all bas^ this 
was done as a means of trying to avoid a social obligation. 

And w^ ^n we hear complaints that some of these things don't work 
out in soliie small area, local conditions there may at least for a t^me 
make the going hard, yet on the.over-all picture the condition may be 
quite sound. It is just the same condition that we found in operating 
under the codes with respect to our lahor complaints that came ir£ 
Most of the complaints were rather insignificant in their nature and 
could be cleared up with ah informal contact with the employer, and 
while the sum total of them seemed like a great deal, still the dver-jUl, 
run^of the larger employers, their treatment of their employees, ygfas 
pretty healthy. * , 

Mr. Berquist. Would you agree with this, then — a shrinking dis- 
tributing margin is a greater threat now to an operator ; that is, he has 
the prospect pi bearing the brunt of such shrinkage, whereas before ' 
that was not true, so that he is now very vitally dependent upon the 
maintenance of a price or the maintenance of a margin, and when 
those margins fail to be realized, that obviously is going to a^ect the 
wage bill or the wage payments that may be made out of that branch 
of the industry ? 

Mr. Anderson. Out of his station or out of his little area ? 

Mr. Berquist. Out of stations generally. 

Mr. Anderson. I don't believe that these margins vary country-wide 
in any direct movement. They. are up and down in certain locations, 
due to conditions which are relatively local, and they are not always 

Mr. Berquist. He has a real stake, though, im the maintenance of 
prices and the maintenance of margins much greater than lie had be- 
fore, and he is much more dependent upon their maintenance in terms 
of his livelihood than he was before. 

Mr. Anderson, Yes. 

1 Copy from which Mr. Anderson read was handed to the official reporter. 


Mr. Berquist. He has assumed a real element of risk there, has he 

Mr. Anderson. He has, perhaps, been required to take a greater 
element of responsibility. 

Acting Chairaian Williams. Are there any further questions? If 
not, Mr. Anderson, we are indebted to you for your appearance here. 
It has been most instructive, and we thank you. 

Mr. Anderson. I thank you for the opportunity. 

(The witness, Mr. Anderson, was excused.) 

Actinq: Chairman Williams. The committee will have tomorrow 
Mr. Hewett and Mr. Hartley for the first witnesses, and perhaps some 
additional witnesses to be announced later. 

The committee will now stand in recess until 10: 15. 

(Whereupon, at 5:05 p. m., a recess was taken until 10:15 a. m. 
of the following day, October 12, 1939.) 



United States Sexate. 
Temporary National Economic Committee, 

Washington^ D. C. 

The committee met at 10:45 a. m., pursuant to adjournment on 
Wednesday, October 11, 1939, 'n the Caucus Room, Senate Office 
Building, Senator Joseph C. OxMahoney presiding. 

Present: Senator O'Mahoney (chairman), Representative Wil- 
liams, Messrs. O'CouubH and Brackett. 

Present also: Quinn Shaughnessy, representing the Securities and 
Exchange Commission : William T. Chantland, representing the Fed- 
eral I'rade Commission ; Clarence Avildsen, representing the Depart- 
ment of Commerce; Representative Disney (Oklahoma) ; W. B. Wat- 
son Snyder, Hugh Cox, F. E. Berquist, Christopher Del Sesto, spe- 
cial assistants to the Attorney General; Leo Firm and Roy C. Cook, 
Department of Justice. 

The Chairman. The committee will please come to order. 

We are to have the testimony this morning of Mr. A. W. Hewett, 
president, and Mr. L. A. Hartley, secretary, of the Petroleum Re- 
tailers Association, of Kansas City, Mo. 

Do you and each of you solemnly swear that the testimony you are 
about to give in this proceeding shall be the truth, the whole truth, 
and nothing but the truth, so help you God ? 

Mr. Hewett. I do. 

Mr. Hartley. I do. 


interest and objectives of petroleum retailers association 

The Chairman. Mr. Hewett, will you give your name to the re- 
porter ? 

Mr. Hewett. A. W. Hewett, Kansas City, Mo. 

The Chairman. You are the president? 

Mr. Hewett. President of the Petroleum Retailers Association. 

The Chairman. What is that association? 

Mr. Heavett. That is an association of retailers, bona fide retailers, 
engaged in the retailing and sales of petroleum products and their 
correlated products, and accessories. 

The Chairman. What sort of retailers? Any subdivision of re- 



Mr. Hewett. No ; no subdivision at all. To be eligible you must be 
a retailer of petroleum products. 

The Chairman. How many retailers? 

Mr. Hewett. Our association has a membership roll of approxi- 
mately 460 at the present time. 

The Chairman. How long have yon been president of it? 
Mr. Hewett. I have been president since a year ago March — ^March 
The Chairman. How old is the association? 
Mr. Heavett. The association is 4 years old. 
The Chairman. What area do you cover? 

Mr. Hewett. The territory covers Greater Kansas City and sur- 
rounding areas; that is, border lines, suburban towns. 
The Chairman. This is a trade association? 
]\Ir. Hewett. It is a trade association. 
The Chairman. Incorporated? 

Mr. Hewett. We are incorporated as a nonprofit organization 
under the laws of Missouri. 

The Chairman. Is there any other statement with respect to the 
association or your own personal relation to the petroleum 'industry 
that you want to make ? 

Mr. Hewett. Individually, aside from the association activities I 
happen to be a college graduate in the retailing business. 
The Chairman. What college? 

Mr. Hewett. University of Kansas. The first 5 years as an em- 
ployee of the Standard Oil Co. of Indiana in the retailing division 
of the Kansas City district; part of the time on the station as an 
attendant; about 1 year's time on certain special Avork; better than 
1 year as supervisor of service stations in the Kansas district of 
the Kansas City field ; the next 6 years as a leased and agent operator 
handling Standard Oil Co. of Indiana products ; for the past 5i/^ to 
6 years operating a semi -independent that I lease from a landlord — 
a private landlord — and operate under a sales agreement handling 
the products of the Texas Co.; for the past 4I/2 years I have had a 
)artner in this last engagement. 
The Chairman. Do you now represent, do you sell the Texas Co. 

Mr. Hewett. I do. 

The Chairman. Are you a divided or an undivided retailer? 
Mr. Hewett. We have only three divided stations in Kansas Qny. 

'hey happen to be 

The Chairman (interposing')^. When you say "we," whom do you 

Mr. Hewett. In the whole area. 
The Chairman. You didn't mean your partnership? 
Mr. Hewett. No. In the whole area of Kansas City there are 
three divided stations. These happen to be at the service stations of 
the Firestone Tirs & Rubber Co. 

The Chairman. Yours is not then- 

Mr. Hewett (interposing). Ours is 100 percent, so far as gasoline 
is concerned. 

The Chairman. Mr. Hartley, would you be good enough to give 
your statement, your background? 


Mr. Hartley. As it relates to this industry? 

The Chairman. Yes, sir. How long have you been secretary of 
this association? 

Mr. Hewett. Mr. Hartley was engaged by the board of directors 
of this association January 1938. 

Mr. Hartley. Prior to that time I was with the Automotive Trade 
Association as field secretary for 4 years. The Automotive Trade 
Association has garages and other outlets and also handles gasoline 
and oil, and all the other products that a filling station would handle. 

The Chairman. Wliat were your duties as field representative of 
the trade association ? 

Mr. Hartley. To go directly to these outlets and survey them and 
contact them, and also help them in merchandising. 

The Chairman. Yours was trade association work. 

Mr. Hartley. That is right. 

The Chairman. How long have you been engaged in that ? 

Mr. Hartley. Well, 4 years there, and I think it is a year and a half 
here, isn't it? 

Mr. Hewett. A little better than that. 

The Chairman. What was your business before tnat time? 

Mr. Hartley. Oh, I have had various engagements of different 
kinds, that happened to d'emand my abilities. 

The Chairman. I understand that you are to make the first state- 
ment for this group. 

Mr. Hartley. I would like, if I might, to call attention to two 
errors appearing in this mimeographed statement. They were not 
errors by the mimeographers but by ourselves. One is in paragraph 
18, page 3, the fourth line from the bottom should be changed, the 
word "April" in "April 14" should be changed to "March 14." 

In paragraph 24, page 4, third line from the bottom, the two words 
"as many" before "monopolies" at the end of the line should be 
changed to "one more" instead of "as many," ^ 

The Chairman. No other corrections? 

Mr. Hartley. That is all. 

The Chairman. The statement as corrected may be received for the 

(The prepared statement of A. W. Hewett and L. A. Hartley was 
marked "Exhibit No. 1265," and is included in the appendix on 
p. 9305.) 

The Chairman. All right, Mr. Hartley, if you will be good enough 
to proceed. 

Mr. Hartley. I would like, if I may be permitted, to mention the 
scope of the association interest as having been illustrated by reports 
of studies as they appear on page 7 of the book entitled "Consumer 
Incomes," published by the National Resources Committee. That is 
the scope of the interest of this association. 

This association has as a dues-paying member the United Coopera- 
tive Association, a consumer cooperative witli about 1,200 members, so 
our interest embraces not only the retailers but the consumers, very 
definitely. In that connection, there are going to be, sure to be, ap- 
pearances of inconsistencies in our testimony, and it is only fair to us, 

1 The corrections have been made In the exhibit. 


1 think, that we call attention to the fact of our connections before 
we begin so that those inconsistencies will not appear. 

Quite naturally, under the present profit system, as it is operated in 
the United States, there is bound to be a conflict of opinion between 
consumer interest and retail interest, and we have tried to harmonize 
that as much as possible, and we are ^oing at times to appear to be 
directly opposed to the retailer interest, because the consumer interest 
must be protected and must be developed. 

In that connection, we prefer very much not to be classified as per- 
sons who might be interested as Santa Claus or somebody like that 
in giving the people son\ething. We are just trying to live in a real 
world, and we have consumers to whom we are deeply obligated and 
we must reflect their interests. 

In that connection, also, I would like to call attention to the fact 
that, so far as I know, we are the first witnesses who have appeared 
before this committee who have been bona fide representatives of con- 
sumers. I. also have gathered that the objective of this committee 
is a consumer objective. 

It has been a marvelous experience to observe the work of a com- 

We thought about preparing charts for you, and some of these charts 
that have been presented by Mr. Wilson appealed to us very much. 
When we attempted to give an accurate representation on a chart 
of the number of persons involved on our side and the number of 
persons involved on the independent oil company men's side, and then 
on the major oil companies' side, we found if we made an accurate 
representation we couldn't get our chart into this room, and we finally 
found out that it would quite top the Washington Monument if we 
made the major oil company volume of human representation only 

2 inches high. 

Then we thought that an obtuse triangle might represent it, and, 
of course, if you just try that a little while you will find that the two 
sides of an obtuse triangle can't be made short enough to illustrate 
that point. 

In a way that also illustrates the feeble gesture that we are making 
here this morning. I have had rather reliable estimates given to me 
of the expense to the major oil companies of their appearance at these 
hearings. I don't know how accurate those estimates are, but they 
are given by persons who might know, and it has been estimated that 
their total expense for all the researc)i that has been ncessary — and I 
can easily understand how it might be — runs something like $500,000. 

A reliable estimate has been given to me by Mr. Hadlick of the 
expense of the independent oil people, who are another side of the 
triangle, of $5,000. 

We rented a cheap room in a cheap hotel and rented a typewriter 
for 2 weeks. We hope we don't have to use it 2 weeks and can get a 
$2 rebate on it. 

Now, the comparison of power before these hearings compels us to 
believe that our effort is going to be entirely futile. 

The next thing that I would like to bring to your attention is the 
consumer-retailer view of previous testimony. I trust that I may 
bring this, and, if I am wrong, you will remember that I am eager 
to be corrected. 


All prior testimony before this committee, with the exception of 
two brief testimonies, has been in support of contentions of one side 
or the other — either the independent oil men or the major oil com- 
panies — the major oil companies contending to preserve their huge 
profits; the independent oil companies contending to get a part of 
them; and so it seems to us that the true objective of consumer inter- 
est has been somewhat neglected by the testimony. As the interroga- 
tion has proceeded from the committee, this neglect of consutoer in- 
terest has been relieved considerably, especially from the chairman 
and the others. 


Mr. Hartley. Now, we will have to inject another angle into our 
testimony. We return just for a brief second to page 7 of Con- 
sumer Incomes, in which the fact is related that one-third of the 
American people receive less tlian $760 a year — one-third of the Amer- 
ican people receive less than $760 a year ! 

We are going to try to prove that we are in that class. 

We can prove it and we would like to submit that it is the fact with 
reference to certain oil-company station operator. Would it be all 
right if I ask the president to take care of this particular item? 

The Chairman. Certainly. 

Mr. Hewett. This happens to be one of our members who did not 
put any restrictions on using liis name — one of the few that didn't fear 
the results of possibly using his name in this connection. 

The Chairman. You say one of the few ? 

Mr. Hewett. One of the few. 

Mr. Hartley. I would like to explain there Mr. Chairman, if I may, 
that when I was asked to come before this committee I had great 
diflficulty in finding actual filling-station operators who were willing 
to appear before any hearing. Out of all our membership in the 
greater Kansas City area, I could find but three who were unafraid. 
Mr. Hewett is one, and this young man, here quoted, is willing to let 
his name be used, but there are very, very few. 

Mr» Hewett. Fear of reprisals. 

The Chairman. Do you mean to say that you received instructions 
from many of your members, or statements from them, that they 
didn't care to appear or didn't care to have their names used ? 

Mr. Hartley. Not only didn't care to but they were afraid to ; that 
their leases would be taken from them — their future would be 

Mr. Hewett. This is more or less typical of operations of major oil- 
company filling stations in Kansas City. It is a neighborhood station, 
located at Meyer Boulevard and Prospect Avenue, which is in the 
middle class residential district, not the country-club area, asnd not 
what we term the "north end." 

The company supplying is the Standard Oil Cq, oi Indiana. The 
name of the lessee, Ray Crowley. The date of r^eogrd, October 1 to 31, 
inclusive, 1938. He bought from th^ swppM^r at cash prices. Total 
gasolines, motor oils, accessoyiefi, tire-repair supplies, lubricating 
greases— total amount oi $423.27. He was at that time selling at 
41/2 cents grass margin— retail margin^-a half cent was collected by 


the supplying company as rental, which incidentally is the lowest 
rental I know of in Kansas City on these stations. On his Red Crown 
gasoline he sold 2,195 gallons at 4 cents — that is, after the reduction 
of rental — 4 cents gross retail profit ; Solite Ethyl gasoline, 416 gal- 
lons, at 414; Stanolind gasoline, 181 gallons, at 1.64, which was the 
prevailing margin on third-grade gasoline at that time. Oil sales, 
34 gallons ; accessory sales, $15.92 ; and tire repairs, $4 ; lubrications, 
$15. That was total assets. 

The amount of gross retail profit was $87.80 on Red Crown Gaso- 
line, $18.72 on Solite Ethyl, $2.97 on Stanolind Gasoline, $15.16 on 
lubricating oils, $3.98 on accessory sales, $3 on tire repairs, and $12.90 
on lubricating receipts, making a total gross profit of $144.53. 

He listed his station expense, light bulbs, $1.08; electric service 
bill, $11.63; telephone service, $3.88; distillate for heating, $3.47; 
water service, $1.50; insurance for the station, stocks in the station, 
$1.50; laundry for the station, $4.43; toilet paper, 60 cents; taxes for 
the month, $6.50; making a total of $34.49. 

Wages paid to helper, $20; paid on equipment note, $25. That 
might call for a little explanation there. It might be common belief 
that these stations are leased with all equipment ready to go in and 
do business. They are not. I have personally had as mucli as $900 
invested in equipment. This was mostly lubricating equipment, bat- 
tery recharger, battery service kit, or other equipment of that nature, 
which when he leaves the station has practically no value to him. 

Expense of items carried forward from these other expenses, $34.49, 
making a total of $79.49. 

Total gross retail profit, $144.53. Expenses, supplies, and wages, 
exclusive of salary for himself, $79.49. Profit for the month, or that 
from which he must get his salary, $55.04. 

This station is a three-drive station with two islands of pumps on 
a prominent boulevard and a prominent street. It is not a little sta- 
tion, it is not a big station in gallonage. 

Hours worked : The operator worked 372 hours. 

This is the explanation that he put underneath : 

Two young men operate this station — 

In his own words : 

One is employed part time elsewliere. His partner was recorded in this report 
as a helper who was paid $20 a month. He worked on this station when the 
regular opei'ator had to leave the job. He worked about 100 hours during the 
month. The station was open to the public 15 hours daily every day in this 
month. Retail prices for this station do not represent prices in other Kansas 
City filling stations. Standard Oil repeatedly tried to get this lessee to reduce 
his gross retail margin of profit. Standard Oil delivery truck carried discount 
signs to this station and the driver tried to get the lessee to accept the signs to 
be displayed. 

This lessee has announced his conviction that he will be denied a lease 
renewal. He has been employed or serving as a lessee in the Standard Oil 
station for several years. 

Now we note that his actual time put in was 372 hours and he 
i*eceived 14.8 cents per hour for that time. His coworker or helper 
that he paid $20 for working 100 hours received 20 cents per hour. 

Mr. Hartley. May I contrast that with the hourly compensation 
testified to by Mr. Robert Wilson of the Pan-American, of 97 cents 
an hour. 


Representative Williams. I notice he was called a lessee, 

Mr. Hewett. He was a lessee. 

Mr. Hartley. He is a lessee. 

Representative Williams. How much rental did he pay? 

Mr. Hewett. A half-cent a gallon. 

Representative Williams. His rental was taken out of the price of 
the gasoline? 

Mr. Hewett. His rental is added to the tank wagon price of the 
gasoline; he pays the tank-wagon price plus one-half cent a gallon, 
and it was collected for at time of delivery of the gasoline. 

Representative Williams. That figure is in the total amount he 

Mr. Hewett. That is right. 

Representative Williams. I noticed you didn't separate it and I 
was wondering where his rental came in. 

Mr. Hewett. A half-cent was paid at the time of delivery of the 
gasoline, which was added to the invoice of tank-wa^^on deliveries. I 
will say this at the present time, just in this connection, personal ex- 
perience, facts of my own operation : For the year 1938 my partner 
and I operated another unit, I believe I am safe in saying the finest 
one-stop unit in Kansas City, and exclusive of salary to us during 
1938, the net yield was five-hundred-fifty-six-dollars-and-some-odd 

The Chairman. What was the salary ? 

Mr. HEWETr, Well, what I could get. My salary depended natu- 
rally upon my needs for living, and had to be derived partially 

The Chairman (interposing). My point is that unless you state 
what your salary was, the committee doesn't know how much you 
received, and the point of your testimony is to indicate what you re- 
ceived. You are telling us that after your salary was paid and after 
all other expenses, your net was this sum of five-hundred-plus. 

Mr. Hewett. That was a little confusing. Before my salary was 
paid to myself or partner, there was only $556. 

The Chairman. I didn't get that impression. 

Mr. Hewett. The actual loss 

The Chairman (interposing). You mean to say your salary and 
your partner's salary had to be paid out of $500 net. 

Mr. Hewett. So far as this unit was concerned. We still operated 
the other unit which had to make up the difference in our salaries. 

The Chairman. Then that doesn't necessarily bring you into the 
$760 class yet, does it? 

Mr. Hewett. No ; we were way below that last year. 

The Chairman. On both units ? 

Mr. Hewett. Yes. 

The Chairman. And both units combined ? 

Mr. Hewett. Frankly, I might be permitted to say, my loss for the 
year in operations was approximately $3,000 on two units. 

The Chairman. Is this condition which you describe, as illustrated 
by the instance of Mr. Crowley, typical of retailing in your district? 

Mr. Hewett. I would say it is typical. There are some of them 
making approximately a dollar a day. There is the other extreme 
of good wages. I would say there are a few stations in Kansas City 
that might be making $2,500 a year profit, to be used as salary for 
paying the operators. 


The Chairman. Well, then, what can you say about the amount of 
gasoline and other petroleum products which you sell? Is that too 
little? Could you sell more? Is it below the capacity of your 
station ? 

Mr. Hewett. They are all of them below their capacity. We have 
a peculiar situation in Kansas City, I think, in comparison to other 
districts. The fact is, within the city limits of Kansas City we have 
more station retail outlets than there are in the District of Columbia, 
and a much less population. 

The Chairman. Well, if you sold more gasoline and petroleum 
products, you would have a higher net income, would you not? 

Mr. IIewett. Well, if all of us sold lower, there would only be so 
much sold. 

The Chairman. I don't say if you sold lowor; I think I said if 
you sold more. 

Mr. Hewett. Oh, yes. 

Mr. Hartley. If I may answer that question, so far as I have been 
able to discover, in Kansas City and in personal investigations con- 
ducted in Kansas, Missouri, Illinois, Indiana, Iowa, Ohio, Pennsyl- 
vania, New Jersey, New York, Maryland, and the District of Colum- 
bit two different times, for purposes of careful comparison, this par- 
ticular example would cover the average neighborhood station. 

The Chairman. Well, now, to what do you attribute this condi- 

Mr. Hartley. May I answer one other question that is involved 
in that former thing ? 

The Chairman. Yes. 

handling of gasoline as "loss-leader" item by retailer 

Mr. Hartley. As far as the sale of gasoline is concerned, there is 
no more profit to the average filling station operator in selling gaso- 
line than there is in giving free air. Is that right? 

Mr. Hewett. That is substantially true. The profit from the sales 
of gasoline will not anywhere near pay the operating expense of the 

Mr. Hartley. Gasoline is carried in most filling stations as a 
loss-leader item, and it has been openly advocated by various major 
oil-company officials that that be done, that gasoline be carried as 
a loss leader. It has been advocated in Kansas City; it was advo- 
cated by the manager of the metropolitan area district for the 
Shell Petroleum Co. in a meeting which he addressed in New York 
City last year. 

Mr. Chantland. From what are you to get your profits, then? 

Mr. Hartley. Oil, grease, and services, and various other things. 
Mr. Hewett makes whatever he can from tires. 

The Chairman. Returning, then, to my question, to what do you 
attribute this condition? 

■ Mr. Hewett. I would say the pressure exerted. I am making a 
general statement for all stations. This particular station's mjtrgin 
does not apply to all of them. Some of them are a half-cent marj;in, 
some of them a penny, some of them 2 cents. There- has been tre- 
mendous pressure exerted on the operators to get volume of business. 
I know personally of a good many operators in Kansas City who 
were told flatly that unless they increased their volume of business 


through their station they would be denied renewal of lease. I know 
not only occasienally but on various times 

The Chairman -(interposing). How does that pressure affect the 

Mr. Hewett., It decreases the margin. The salesmen or the rep- 
resentative or supervisor will urge the operator to be competitive. 
"There is so-and-so across the street or down the street. He is sell- 
ing gasoline at 2 cents under you, or 3 cents under you. You must 
increase tl^'-^oiume in this unit of distribution or we will have to 
find another outlet. Be competitive, meet his price, and get the 

The Chairman. And meet the price out of the margin ? 

Mr. Hewett. Out of the margin of the outlet. 

Representative Williams. Are all these stations lessee stations? 

Mr. Hewett. No; that follows a little later in our statement. 

Mr. Hartley. Answering that question, 60 percent of them in the 
Kansas City area are directly leased stations. 

Representative Williams. You are in direct competition with the 
independently owned station, aren't you? 

Mr. Hartley. The actual figures as assembled by, I think, Mr. 
Shaf ner, were : 57 percent of the stations and outlets in Missouri are 
directly controlled and owned my the major oil companies, 22 per- 
cent by jobbers who are suspended from the major oil companies, and 
the rest of them by independents. 

Representative Williams. You don't think it would make any dif- 
ference if you sold 1,000 gallons a day instead of a hundred? 

Mr. Hartley. Yes ; we have made cost studies of stations and we 
will have to admit that as. your volume goes up there is a point 
finally reached, it is up around 10,000 gallons, which few stations 
achieve, when you begin to make a little bit of money, and as you go 
forward, if you can keep your expenses down proportionately, you 
can make money, but unfortunately you have to hire more mon to 
put the gas in the cars. 

Representative Williams. You don't think a reduction in the num- 
ber of stations in that area would help the matter? 

Mr. Hartley. It would greatly help us but it wouldn't help the 
consumers very much. There is where our relationship becomes 
complicated. The consumer wouldn't benefit. 

Representative Williams. From the standpoint, it seems to me, of 
the owner and operator of the station, if there is an overbuijt situ- 
ation there it might be their fault. 

Mr. Hartley. Absolutely correct; there isn't any question about it. 

I question seriously — Mr: Hewett wouldn't do it ; his loyalty to the 
Texas Co. is naturally a very substantial thing — but I would question 
and I think a great many members of the Association would question 
whether the Texas Co. ever had any good reason to build a station 
where he went broke. 

difficulty of protecting interests of both retailer and consumer 

The Chairman. Well, what about the price of gasoline? Is that 
not high enough, or is it too high to the consumer ? 

Mr. Hartley. We think it is too high to both consumers and re- 
tailers and we would like to maintain m our testimony, if it is per- 
mitted to inject it, that the place to get the reduction is not from the- 


margin of the retailer. We knew wliere some of that decreased cost 
of gasoline came from. It came out of the margin to the retailers, 
and off their tables in their homes. We knew that. 

I would say that we believe it ought to come, somehow or 
other, from the tank-wagon price, from this huge profit that was 
revealed here the other day by Mr. Hadlick. We believe that some- 
how or other some of that should go to the consumer and the retailer, 
and we believe that there is plenty piled up there and I think we 
can prove it, that prices are far too high. 

I would like to give one more answer to the question you directed 
to Mr. Hewett, that is, to the couse of all this. 

Our board very carefully went into the cause of these things, what 
is the matter with them, and we believe that it is the whole concept of 
business as it is now conducted in the United States where an un- 
limited profit is accepted as a divine right. 

The Chairman. Well, what recommendation do you make? 

Mr. Hartley. We have got that down at the close of our statement. 

The Chairman. All right; proceed. We won't interrupt. 

Mr. Hartley. I do want to point out in passing, if I may, that we 
have been what we considered to be reliably informed by persons 
who were coimected with the allocation of the charts that were pre-- 
sented here, that the American Petroleum Institute prepared those 
charts for the various major oil companies who used them, that the 
American Petroleum Institute prepared the charts that were used 
by the Pan-American and they were also the same charts — not the 
same chart i but charts in the same group, prepared by the American 
Petroleum Institute — used by the Staijdard Oil of Ohio. We 
were informed by a person who delivered the charts to this room that 
the cost of those charts, the physical preparation of those charts, was 
something like $50 apiece. Back of that, of course, is an enormous 

The Chairman. Of course, this committee may be responsible in 
a way for that expenditure, since we invited them to present the 

Mr. Hartley. I wasn't calling attention to the expense. I had 
already previously called attention to the $500,000. It is the fact 
that the major oil companies jointly used the American Petroleum 
Institute for such services. 

Apparently Mr. Hadlick didn't have that opportunity, and cer- 
tainly we didn't. We are not members of the American Petroleum 
Institute ; however, we are not entitled to be. 

The Chairman. However, you have your opportunity now to pre- 
sent your case. 

Mr. Hartley. That is right; but I did want to call that to the 
attention of the committee. 

We would like to indicate the agencies to be used to influence public 
opinion and an indication of the intention by the integrated oil com- 
panies to create an over-all industrial atmosphere. That is one reason 
I called attention, to the charts. Every bit of the presentation, the 
direct presentation of Mr. Swensrud, most of the direct presentation 
of Dr. Wilson, was given as the achievement of the industry. It 
seems to be a definite plan, and our experience in the past through the 
filling stations in handing out propaganda that is handed down to 


the filling stations by the major oil companies is that it is to create 
a sort of over-all atmosphere. Whatever has been achieved by the 
industry for the benefit of humanity and for the good of the Nation 
has been achieved by the industry. That is a modest assertion. Wliat- 
ever threatens the industry naturally threatens the major oil com- 

I would like to call attention to a few indications, then. 
I have here a paper read before the session of public relations at the 
ninth midyear meeting of the American Petroleum Institute at the 
Roosevelt Hotel in New Orleans, La., May 18, 1939, by Mr. H. A. 
Inness Brown. The paper is entitled "Dealer Relations From the 
Dealer's Point of View." Now, Mr. Brown is entitled to speak upon 
that subject, because he is not only a member of the board of the Na- 
tional Association of Petroleum Retailers; but he also publishes 
a newspaper which is highly utilized by the major oil companies 
in advertising — -the Gasoline Retailer. Mr. Brown is not only a mem-^ 
ber of the board of the National Association of Petroleum Retailers 
but he also has been made a life member of the board. He goes to 
this American Petroleum Institute with several suggstions — and I 
would like to read a few of those — assuming to represent the retailers 
of the country. 

He says, "The dealers serve the industry." Again we have the 
overall atmosphere. "Indeed, the dealer through his personal contact 
with his customers is the" — and he has this in bold type — ^"only 
means that many companies in the industry have of presenting their 
story, and incidentally, in spite of criticism he does an excellent job 
of it: The fact, that the dealer in the oil industry serves more 
than"— he has "2,700,000,000 buyers of gasoline"— I don't see how 
there could be that many in this country, but that is beside the 
point — "and automotive services every year without noticeable com- 
plaint or trouble speaks well for the service, ability of thousands upon 
thousands of dealers and their employees who carry on this gigantic 
distributing job. The first problem," he says, "is the widespread mis- 
conception" — in dealing with these dealers and helping to understand 
them much better — "the widespread misconception on the part of the 
dealer as to the make-up and service of the industry. The second 
problem is the invasion of the retail field by agitators and radical 
leaders who hope to upset its business structure. The third problem 
has to do with the political aspect of the industry which makes itself 
known by investigations, legislation and legal action in the courts. I 
should like to discuss these problems briefly," and then he discusses 
them briefly. "Dealers' misconceptions." 

The Chairman. Are you" adopting these statements as your own? 

Mr. Hartley. Oh, no ; oh, my, no ! I am calling attention to the 
thing that is advocated before the major oil company .representatives 
at the American Petroleum Institute meetings by a man who is the 
representative and a life member of -the board of the National As- 
sociation of Petroleum Retailers. 

The Chairman. Do you want to quote Mr. Brown in order to con- 
trovert his statement? 

Mr. Hartley. Yes; we are trying to controvert these statement. 

The Chairman. Of course, these statements were not made before 
this committee. 


Mr. Hartley. That is right. Are they unacceptable here ? 

The Chaibman. Of course 

Mr. Hartley (interposing). We are offering it as an exhibit. 

The Chairman. I don't want to shut you off, but I think the com- 
mittee would he much more interested in your own testimony and 
your own point of view' rather than a debate that you may want to 
state between yourself and a gentleman who isn't here. 

Mr. Hartley. We don't want to -debate this association. We are 
offering this as evidence, as an indication 

The Chairman (interposing) . Of course, all this material is avail- 
able to the committee, speeches that have been made and articles that 
have been written ; we all know that. I think it would conserve the 
time of the committee if you would statei your own, case and express 
your own views about that, we are quite willing to have you express 
them. ' ' 

Mr. Hartley. I couldn't express it as well as he does here ; I just 
couldn't ; I would wander around hfere. I know my. own inability ; I 
would wander around here' and wouldn't get anywhere. I would like 
to, tell you this thing went out to allthe filling stations of the country 
and it will be fed through the filling stations to the customers. It is^ 
the type of propaganda that we have to distribute. 

It goes on to say: 

Some of those misconceptions are that the Rockefeller interests still dominate 
the oil industry and are the cause of much of its difSculty; that'the industry is 
slowly but surely growing into a monopoly ; that a few men in the Industry own, 
control, and dominate its policies. 

In other words, that he proppses to be the aim of the National 
Petroleum Retailers Association, to controvert such misconceptions. 

Now, the next thing I would like to submit as an indication of this 
tendency to create an over-all atmosphere, an over-all industrial 
atmosphere, is a copy of an editorial appearing in the Kansis City 
Star, following the oil-well shut-down. The Kansas City Star is 
located at the front door of the great oil fields of the Southwest, and 
being a great liberal newspaper it is naturally widely quoted in the 
East. Quoting from this editorial published in the Kansas City Star 
of Wednesday, August 18, 1939, the aims of the shut-down are clearly 
announced according to the view of an editor of a leading newspaper 
of the oil-producing section: 

The object of the shut-downs is to prevent the oil industry from being shat- 
tered by general price riddling. Many independent operators charge that the 
big companies have been reducing their stocks for some time in preparation for 
the cut, with the idea of replenishing supplies with cheap oil. On the other 
hand, the refiners point out that they cannot sell the products from a barrel 
of oil for as much as they pay for the original crude. 

Whatever the merits of this dispute — 

Continues the editor — 

the action in the Mid-Continent field, which will hold off the market the produc- 
tion of 2y2 million barrels of petroleum a day — 37% million in 15 days — will 
have an appreciable effect on the inventories, and it is hoped will cause a price 
increase in gasoline and other refined products suflScient to make possible the 
continuance of crude prices existing before the recent general dislocation of the 
market. These prices apparently are necessary if the industry is not to go 

The point that I have been trying to make throughout all these 
readings is that there is m oyer-ajl industrial atmosphere deliberately 


being cultivated by the oil companies and the subsidized Kansas City 
Star — and the Kansas City Star receives very heavy advertising from 
the major oil companies. I am not charging the editor of the Kansas 
City Star with having deliberately injected a false note. I walit to 
be clear on that question. It is just a matter of reading the stutF 
that is passed out. 

All of these things that are being submitted here by the major oil 
companies will be republished and distributed by these same major 
oil companies to all the newspapers and to all the filling stations of 
the country to ba passed out to customers. 

; Representative Williams. Do you agree with that statement, t^^at 
that was the reason for the shut-down? 

Mr. Hartley. No; not at. all. 

Representative Williams. What is your explanation of it ? 

Mr. Hartley. I think the shut-down — ^I hadn't any intention to get 
into that q|uestion but in answer to your question, Congressmen, I 
would say it is our belief that the shut-down was deliberately stimu- 
lated by the major oil companies, following the Sinclair attempt at 
leading the major oil companies in a price »rise in 42 States on June 
14, to prepare the minds of the public with a sympathy dodge for 
the poor little producer. I think that is reflected in this editorial — 
for the poor little producers. They were in straits, although the 
major oil companies have been shown not to be in straits, but the 
poor little producers needed more money so the price of gasoline 
had to come up to the people, and the shut-down was an effective 
way of calling attention on page 1 of all the newspapers in the 
country to the straits in which the producers of the oil fields had 

Now I would like to read a report published in the Kansas City 
Star of August 14, just 2 days before this editorial was published — 
it was a report from the Associated Press on earnings of the Stand- 
ard vOil of Indianar— jus. to prove that the over-all atmosphere re- 
flected in the editorial is not a true reflection. "After deprecia- 
tion" — I am quoting — "depletion and all other charges, and after 
providing for all Federal income taxes" — end of the quote — Standard 
of Indiana admitted earning ret profits of $14,979,693 during the 
first half of 1939. Huge salaries and bonuses to favored stockholders 
and officials were all cared foi before this melon was handed down 
to less favored stockholders. Superprofits from pipe lines, fictitious 
freight overcharges 

The Chairman (interposing). Are you now reading? 

Mr. Hartley. I am making my own statement now. I very care- 
fully said "end of the quote." But you understand we are close to the 
oil fields and we are close to the pipe lines and we have made a study 
of them. 

Superprofits from pipe lines, fictitious freight overcharges, and 
patents were diverted to other cbannels and did not show on the 
Standard of Indiana report. Numerous specially chartered cor- 
porations assured other diversions. , 

I would like to call attention to some of this over-all atmosphere 
in this propaganda that is shoved down through the filling stations 
by the National Association of Petroleum Retailers. I am reading 
here from a publication of August 5, 1937, on the letterhead of the 
national association, which we consider a subsidized unit. It has 

124491 — 40— pt. 16, sec, 3 14 


been brought out in a congressional hearing that they are not truly 
representative of the great number that they say they are. I can 
cite that hearing if you care for it. 

This was on the subject of cooperatives. You understand that 
we have a cooperative member. 

Mr. Shaughnesst. Is that Mr. Cowden's company? 

Mr. Harti^et. That is not Mr. Cowden's company. Mr. Cowden 
doesn't own any cooperative. Mr. Cowden is manager of the Con- 
sumer's Cooperative Wholesaler of North Kansas City. This is the 
United Cooperative which is associated with the company with which 
Mr. Cowden is associated. 

Mr. Shaughnesst. But he obtains the gasoline for the coopera- 

Mr. Hartley. He does; yes; as a wholesale unit, but our member 
is a retail unit. 

Mr. SiiAUGHNESSY. Docs this cooperative operate filling stations 
or does it sell to others? 

Mr. Hartley. It operates filling stations of its own. 

Mr. Shaughnessy. On a patronage-dividend basis? 

Mr. Hartley. Yes, sir; under the Rochdale plan. 

Mr. Shaughnessy. And those compete with other filling stations 
"that sell the products of the major companies? 

Mr, Hartley. Yes; right next door. 

Mr. Shaughnessy. So they post the same price. 

Mr. Hartley. Yes; they do. One Rochdale principle of coopera- 
tion in industry is to sell at the market price. 

Mr. Shaughnessy. Therefore, there is also a discount in favor 
of cooperative station as against the major company stations. 

Mr. Hartley. In the dividends they return to their consumers; 

Mr. Shaughnessy. Do you Imow what the average dividend on 
gallonage basis is? 

Mr. Hartley. No; I couldn't say that. 

Mr. Shaughnessy. Would it be as much as 2 cents? 

Mr. Hartley. No; I don't think so. I am just guessing on that 
but I don't believe it would be. 

Mr. Shaughnessy. Does the cooperative pay salaries? 

Mr. Hartley. It pays salaries; yes. 

Mr. Shaughnessy. Have you any idea what the salaries are? 

Mr. Hartley. No; I couldn't give it to you accurately and I 
wouldn't try. 

Mr. Shaughnessy. Are they more or less? 

Mr. Hartley. Much* more. One of the cooperative boys took me 
to a country club dinner one night and Mr. Hewett couldn't do that 
well. He took me to the Blue Bell. 

Mr. Shaughnessy. Do you think the presence of the cooperatives 
in the Kansas City area has any effect upon the dealers' margins that 
he pa'sses on to Mr. Hewett? 

Mr. Hartley. Only in Clay County. 

Mr. Shaughnerj^y. Of course, tlipy are right side by side. . 

Mr. Hartley, In Clay County only. They don't come into Kansas 
City, Missouri. 


Mr. Shaughnessy. But that leads to depression in the price. You) 
can't have a depressed price in one area and a higher price in anothey 
without some effect. 

Mr. Hartley. Mr. Hewett managed to keep a higher pride by 
being good to his consumer. He sells at a little higher price than 
the next-door man. They have a Barnsdall station next door but 
they have had 22 Barnsdall men there in as many months, haven't 

Mr. Hewett. It is 2 months now since the last one came. 

Mr, Hartley. -In that Barnsdall station next door to Woody ^ they 
have a little lower price, but sometimes by being very good to your 
customers you can hold them, as in the case of Mr. Hewett. 

The Chairman. What do you consider being good to a customer, 
that is, being good enough to Kold him ? , 

Mr. Hewett. I might explain that this waj^. There is a difference, 
I think, in the meaning between filling station and service station. 
Literally, we operate a filling station. We consider ourselves a 
service station. Gasoline is only one of the many items we sell and 
we render complete service to the automobile owners and our cus- 

The Chairman. In other words, you hold your customers by the 
attention you pay them rather than by the price you charge. 

Mr. Hewett. That is right. When Mr. Hartley gets through with 
that, I will take up the inconsistency of that. 

Mr. Chantland. Mr. Hartley, you repeatedly make the statement 
that there is an effort to create an over-ail atmosphere. What kind 
of an atmosphere do you mean, and do you assert that the atmos- 
phere intended to be created is a true or false atmosphere? 

Mr. Hartley, I think it is a false atmosphere. 

Mr. Chantland. Will you explain that? 

Mr. Hartley. I have to give an illustration and I hate to give it 
because I don't know whether it will be all right, here, but there is an 
old story down in Missouri, where we come from, where Congressman 
Williams comes from, about a robber that used to run loose in a 
Robin Hood sort of way. He used to go into these places where 
he would go to rob people, and finally it got so the constables of the 
neighborhood knew he was coming, but he would go just the same 
and he would go in and he would rob them, and then if the constable 
could come after him, he would hurriedly crawl into bed with his vic- 
tim. He would lie there with a knife in the victim's side until the 
police got out. [Laughter.] 

That is the over-all atmosphere we mean, but I don't know whether 
it is right to bring it here or not. It is the quickest way to answer it, 
and I am trying to do it as quick as I can. 

Now, going back to the cooperatives and the propaganda being 
handed down through the National Association of Petroleum Retail- 
ers to the filling st^-tions to pass out to the public, we find this sort 
of thing signed by these men — I have given tne date, August 5, 1937, 
signed by the Committee on Ways and Means : Fred I, Brewer, W, M. 
Boutin, and M. E. Holland. Mr. Holland was just elected the presi- 

1 Refers to Mr. Hewett. 


dent of that association, Mr. Schuh ^ having . been elevated to the 
chairmanship of the board. [Reading :] 

As a subject of Association policy, you are advised — 

This is addressed "To All Associations" — 

that the Committee on Ways and Means has been making a special study and 
prepared a report upon cooperatives preliminary to submitting it to the Com- 
mittee on Cooperatives, but urge that all associations shall take certain imjne- 
dlate steps. 

Write your Congressmen that your organization is opposed to these coopera- 
tives being given special consideration that they may undermine taxpaying 

Notify your State legislators to the same effect. 

Cooperatives form a real menace to our civilization in that they undermine 
our entire economic structure. While it is true that they do not yet operate 
in all parts of the country, they are spreading rapidly and principally because 
of the exemptions and subsidies they enjoy as compared to the taxes and re- 
strictions placed on business. It is the duty of every businessman and every 
employee to protect the service-station business from this pampered type of 
operation that declares dividends from the favoritism of the law. 

Now, we have one about Government control. This is "To All 
Associations," signed by David W. Shaw, vice president of the Divi- 
sion of Legislation of the National Association of Petroleum Retail- 
ers [reading] : 

The N. A. P. R. officers and committees" in all their duties and plans adhere 
strictly to the statement of policy of the Association, and the Legislative Com- 
mitteee again here publish the part of that policy pertaining to legislation : 
"That this Association shall avoid legislation as a means of securing its intra- 
industry objectives. That this Association shall support constructive legisla- 
tion for the welfare of the industry as a whole." 

That is the point I am trying to make, that this over-all atmos- 
phere is being encouraged — "as a whole." 

And down oelow, he didn't put it in as a P. S. but it operates that 

Above all we must keep industry away from governmental supervision or 
control. If petroleum is placed under public-utility control we will all be danc- 
ing to the tune of the political group in power. It is almost certain to mean 
a reduction in our income. It is doubted if a few square-capped persons could 
handle this. We must not allow the type of legislation to enter our Industry 
that would cause Mr. Public to look at us with a frown and a squinting eye, 
for after all he is our paymaster. So let's treat him with the highest respect. 
Be sure he is given a fair consideration, and work out our troubles with a 
minimum of law and regulation. 

We have been trying to work out our troubles that way for a long 
while and you can see what it has done for Mr. Hewett, and me. 

Now, we have a letter from -the American Petroleum Institute, 
American Petroleum Industries Committee, 50 West Fiftieth Street, 
New York, N. Y., Department of Public Relations. It is dated Jan- 
uary 31, 1939. It is signed by Victor H. Scales, Director of Public 
Relations. I would like to testify to the reason for this letter having 
been written. 

The Chairman. To whom is it addressed ? 

Mr. Hartley. To me. 

We have been consistently trying to win our consumers to us out 
there so they will continue to trade with us at winning prices. The 
major oil companies had sent out a lot of "circus" signs to their 

1 Wilmer R. Schuh, whose testimony appears In Hearings, Part 17. 


stations that they could get them displayed in, to get them to 
put them up : 2 cents off, 3 cents off, 4 cents off — from God knows what. 
Sometimes it is 4 cents off from something higher than the price was 
when they all began. We wanted to get out a sign of our own and 
we couldn't put them -up, so we got out a little booklet, just something 
to stick in your pocket, entitled "Facts About the 1938 Kansas Gasolhie 
Price War." ... 

On the face of it, it was a local situation being discussed, and we 
began handing them out to the customers in Kansas City, and the cus- 
tomers who received them, some of them, were tourists, and they handed 
them out at home, and that thing kept on being asked for in our' 
office until we had sent out 54,000 of them all over the United 
States, and we began receiving letters from dealers all over the United 
States telling us that the thing we had written, intended entirely for 
home consumption, was identical with their own condition, wherever 
they were. 

The Chairman. Do you have a copy of that ? 

Mr. Harti/ET. No; I am sorry; we sold out the last one at 2 cents 
apiece, and paid the postage, and went broke finally with it, and about 
that time Mr. Scales wrote for 200 copies. It seemed like some of his 
managers in the major oil companies had read it and they wanted it, 
and they wanted more of it, and it might justify the existence of the 
public relations department of the American Petroleum Institute, 
because we had told the story of what they had done to us and 
about how we had been punished for appealing to the Justice 

He wrote to me and asked me for them and he took me to account 
a little bit for some of the things that he had seen in this pamphlet 
that had come to him. Among other things, he says this [reading] : 

I am wondering whether the way to aj;tack what you call excessive major oil 
company margins is through contact with the public and with the politician. 
Would it not be possible for your people to sit down with representatives of the 
major oil companies and discuss the whole situation? 

And we have been trying to sit down with them ever since, and this 
is the first opportunity we have ever had. That is right. [Reading 
further :] 

It is my experience that there is much to be said on both sides of any argument, 
and it is very possible that a definite decisibn could be reached that would be 
agreeable to all. My point is that in contacting consumer groups and public 
oflBcials you are merely putting the whole industry in an extremely bad light, 
and that eventually the shadow will fall on members of your association as well 
as upon everyone else. I fear you will find that the politician cannot be depended 
upon to be always on your side, and you are likely to find that, having asked a 
favor of him, he will ask a favor of you, and you and your members might be 
placed in a very unfortunate position. 

The Chairman. Well, you are in a pretty bad way, Mr. Hartley, 
now, with the politicians in front of you and the A. P. I. behind vou. 

Mr. Hartley. Mr: Hewett and I thought about that yesterday, and 
we went up to see Congressman Williams, because he is from Missouri. 
We thought it would be all right because he is from down close to 
St. Louis and not up close to Kansas City. We went to Mr. Wil- 
liams, and we told him that we liked him and we liked you fqiks, 
and we also told him thatjwe didn't want any favors because he liked 


US ; that we wanted to just put the honest facts before you. Honestly, 
' we are coming here without anything to cover up and nothing to 
conceal, and certainly nothing to gain, and not much to lose. 
Mr. Hewett. Not much to lose. 


Mr. Hartley. Now I come to another publication by the National 
Association of Petroleum Retailers; I don't know just how to conduct 
myself here — you know that. 

The Chairman. You are doing pretty well. [Laughter.] 

Mr. Hartley. They give an address at 251 Republican Hotel, Mil- 
waukee, Wis. 

Mr. O'CoNNELL. Would you repeat that ; I didn't get that. 

Mr. Hartley. It didn't go over very well. I am giving thoir ad- 

The Chairman. That was a little political alhision. . 

Mr. Hartley. Now, we have here some "Do's" and "Don't's" put 
out by this association for association members. Let me see if it gives 
the signatures here : Mr. Brewer, Mr. Boutin, ai)d Mr. Holland. 

One of the "Don'ts" [reading from "Exhibit No. 126(5" | : 

Don't raise the price until you have advised suppliers of your honest purposes. 

One of the "Do's" [reading from the same exhibit] : 

Call on wholesalers and large suppliers, explain your purpose and program, 
and request their advice and cooperation in making the new normal price effective 
throughout the territory ; use all the tact you have, realizing that the suppliers 
may be placed in a diflScult position and that they cannot agree with you to 
increase the price ; show them that you are merely asking that they do not act 
destructively in regard to your program, remembering that most of these suppliers 
have had years of experience in marketing, and it is only smart to take advan- 
tage of their counsel. 

(Representative Williams assumed the Chair) 
Mr. Hartley. There are some more "Do's" [reading further from 
"Exhibit No. 126^6"] : 

In determining the advance to be made, realize that a small advance to a new 
normal cost-recovery price will not be noticed by the public, will not be detri- 
mental if all do not go up at once, and will not divert gallonage to surrounding 
territories; then keep the advance within a quarter or three-tenths of a cent, 
knowing that you can make another advance later when others have followed 
your lead. 

By this time you should be in the position to select your "market leader" 'who 
has the courage and those qualities of leadership that others recognize' and 
will follow. After he is selected, give him your whole-hearted support. 

Remember to not agree upon a price, but each individual has the right to 
determine what he wants to do and to announce it, thus avoiding any conspiracy. 
Your "market leader" can set a price and the organization can send out a 
notice that blank's service station is posting a retail price of 17.6-18.6 and 20.6 
at 7 : 00 A. M., day and date. 

If you have to use the blockade method — 

And I want to testify here that under the conditions we had in 
Kansas City, we had some real problems in avoiding violence. I don't 
know whether you know it or not. but we had a Duce in Kansas 
City. We had two duces. We had Duce Lazia and he was shot and 
we had Duce Carrola before he was shot — ^no. Woody says we still 
have Carrola; 'he isn't shot yet. 


We have trouble in keeping account of them up there. Congress- 
man Williams knows that. So they were telling us to use the block- 
ade system. Now we had gone far beyond the blockade system before 
this came to us. 

Mr. Shaughnessey, The blockade system is driving cars into serv- 
ice stations and leaving them so no other cars can get in. 

Mr. Hartley (reading from ''Exhibit No. 1266 ') : 

Be sure it is friendly and peaceful, so as to prevent injunctions for disturbing 
the peace or disorderly conduct or assault, conducting yourselves as customers 
who are making small purchases and utilizing the free services which the station 
offers to the public, and block the driveways for a short time only — but during 
the busiest part of the day. 

Now we had gone a long ways beyond that by the time that letter 

Mr. O'CoNNELL (interposing). Would you mind telling me from 
what organization that emanated? 

Mr. Hartley. The Nr ional Association of Petroleum Retailers, 
ways and means committee. 

Mr. O'CoNNELL. That really doesn't mean very much to me. "Wliat 
is that organization, what is it composed of? 

Mr. Hartley. Woody has attended a couple of conventions ; he can 
tell you. 

Mr. Hewett. The National Association of Petroleum Retailers 
purportedly is national in scope and supposedly deriving its support 
from different local associations throughout the United States. We 
are endeavoring here to show that the policies of the National Associ- 
ation are not ours. 

Mr. Chantland. "Oui«"? 

Mr. Hewett. Are not the policies that we follow, and we have 
definite reason for believing that they are a subsidized organization. 

Mr. O'ConStell. Subsidized by whomT 

Mr. Hewett. Major oil companies. 

Mr. O'CoNNELL. How can you support that? 

Mr. Hewett. I can support that in this way. We had a former 
member of ours who was a national director for 1 year and that was 
his conviction through attending board meetings of this same Na- 
tional Association of Petroleum Retailers. 

Mr. Hartley. I wonder if your words got into the record — not a 
former member but a present member. You said a former member of 
our association. 

Mr. Hewett. He is a present member, but a former member of tnis 
National Association of Petroleum Retailers. In direct conversations 
with Past President Schuh it was admitted by him that a portion of 
his support came from Standard Oil. 

Mr. O'CoNXELL. Can you identify this document?^ 

Mr. Hartley. Yes; the organization received it through the mail. 

Mr. O'CoNNELL. I think it is very important, at least to me. As 
I understand it, this document purports to advise people how to 
blockade people who do not operate in a way that this organization or 
other people might think proper. It seems to purport to advise 
people on how to in effect raise prices or maintain prices w^ithout 

i "Exhibit No. 1266," appendix, p. 9307. 


having the legal effect of a conspiracy in restraint of trade. Is that 
a correct statement of what this document purports to do? 

Mr. Hartley. I didn't submit it for that purpose. I can see 
where you would draw that conclusion very closely. I would say 
that that would be a fact, but I submitted it to show the over-all 
atmosphere that is being created and the methods of creating it. 

Mr. O'CoNNELL. Well, I believe that it does more than that, and 
personally I would like to have this entire document included in the 
record if you are in a position to testify to its authenticity. 

Mr. Hartley. Oh, yes; I testify to its authenticity. We have our 
files full of such things. We couldn't bring them here because we 
had to travel. 

Mr. O'Connell. Representative Williams, as acting chairman, 
would you have any objection to my requesting that this be in- 
serted? I understand that you testified that you received this in 
the mail. 

Mr. Hartley. Well, we received it. Our office received it. 

Mr. Hewett. Our office, as an association office, received it. 

Mr. Hartley. I am careful to say that I didn't actually receive 
it but I know it came from there, we know dt came from there. 
Everybody here knows the man who signed it. 

Mr. Snyder. Mr. Hartley, do you normally receive circulars of 
this kind from the N. A. P. R. ? 

Mr. Hartley. We used to until our rriethod of operations wer^ 
directly opposed and until we became known as a rebel organiza- 
tion. Then they ceased to send us them. 

Mr. Snyder. Was your organization at one time affiliated with 
theN. A. P. R.? 

Mr. Hartley. Directly ; a dues-paying affiliate. 

Mr. Snyder. What is the date of tiiis document ? 

Mr. Hartley. At that time we were affiliated. 

Acting Chairman Williams. It doesn't seem to have a date. I 
wanted to ask you when you received it ? 

Mr. Hartley. I couldn't tell you. 

Acting Chairman Williams. Could you tell us about when ? 

Mr. Hartley. I tried to identify it. It was about September 
1937. I tried to identify it this morning. 

Acting Chairman Williams. Have you received since that time a 
similar document to this ? 

Mr. Hartley. No ; not similar. We have never received anything 
from them that have been duplicates with the exception of such 
things as were to be passed out for distribution. 

Mr. O'Connell. I would like to have it inserted. 

Acting Chairman Williams. I think it might be admitted to the 

(The document referred to was marked "Exhibit No. 1266," and 
is included in the appendix on p. ^307.) ^ 

Mr. Hartley. I think you could find lots of them over the country 
that have been sent out similarly. 

Mr. Chantland. Mr. Hewett, Mr. Hartley has read a number of 
other communications and bulletins from purported retailers and 
cooperatives on whose views you and he do not seem to be in accord. 


Is the committee to infer from that that you regard these things 
as inspired or induced things as you have stated about this associa- 
tion, or as their genuine or real views ? 

Mr. Hartley. May I call your attention, Mr. Chantland, to the 
fact that we have read communications from only onel other associa- 
tion and that was the American Petroleum Institute. All these from 
other associations have been from the same association, the National 
Petroleum Retailers Association. These several ones have been from 

Mr. Hewett. We are just submitting them. 

Mr. Hartley. I think if Mr. Hewett will agree with me — and I 
know he' won't unless he does — we do consider the National Associa- 
tion of Petroleum Retailers to be definitely subsidized by the major 
oil companies. Is that all right ? 

Mr. Hewett. That is a statement I know something of. 
(Senator O'Mahoney resumed the Chair.) 

The Chairman. I was called to the telephone when you presented 
this.^ Do I understand you to testify that this document, which is 
obviously a mimeographed statement or a statement produced in bulk, 
and which bears the title "National Association of Petroleum Re- 
tailers Waysi and Means Committee, 251 Republican Hotel, Milwau- 
kee, Wis.," also carries the designation "Bulletin WM-1," was re- 
ceived by you? 

Mr. ELartley. Was received by our oflSce. 

The Chairman. Received at your office? 

Mr. Hartley. At our office. 

The Chairman. How? In the mail? 

Mr. Hartley. Through the mail. 

The Chairman. Was there any other identification of it? 

Mr. Hartley. Excepting the envelope — it was from the associa- 

The Chairman. Was it transmitted with a letter? 

Mr. Hartley. No. 

The Chairman. It just came in the ordinary mail? 

Mr. Hartley. That is right. 

The Chairman. Bearing an envelope which was also designated as 
coming from the National Association of Petroleum Retailers? 

Mr. Hartley. And they use that peculiar multigraphed type for 
a great many of their bulletins and it is signed by a member of the 
Ways and Means Committee. 

The Chairman. It purports to be signed by Fred L. Brewer, W. M. 
Boutin, and M. E. Holland. Have you any knowledge as to who 
those gentlemen are? 

Mr. Hewett. I have met all of them in national conventions. 

The Chairman. And are they the members of the ways and means 
committee ? 

Mr. Hewett. They were at that time. 

Mr. Hartley. Mr. Holland is now president of the association. 

The Chairman. And Mr. Fred L. Brewer was the chairman of 
this ways and means committee? 

Mr. Hewett. He was at that time. 

1 "Exhibit No. 1260." 


Mr. Hartley. And Mr. Fred Kaullen, an active member of our 
association, was a member of their board and a member of their 
ways and means committee. 

The Chairman. I observe that this also bears the legend — 

Extra copies C. O. D., Express or Parcel Post, $2.00 for 100 copies or less, 
$3.50 for 200 copies, $4.50 for 300 copies, $6.00 for 500 copies. 

Have you ^ny information as to whether or not this was circulated 
among the retail members of your organization? 

Mr. Hewett. It was not. 

The Chairman. Was it received by any other members of your 
organization ? 

Mr. Hewett. Not that I know of. 

Mr. Hartley. I would qualify that a little bit, I believe, from my 
experience, if you will excuse me, to this effect : That we find a great 
many of our retailers whose names have been obtained somehow or 
other do receive through the mail literature from various sources 
around over the country, including the Gasoline Ketailer and the 
National Association, and also from an association in California 
which has been very persistent in sending out such propaganda. 

Mr. O'CoNNELL. There is one factor about this particular docu- 
ment to which you referred in which I am very much interested 
and which apparently you are not in a position to substantiate, and 
that is the ultimate source of this document. You indicated that 
it was your belief that this particular organization was, as you put 
it, subsidized by the major oil companies, but you didn't tell me 
anything that seemed to indicate any substantial basis for that belief. 

Mr. Hartley. That will be covered again a little bit later in some 
other testimony showing that Mr. Schuh, president of the association, 
came to our office and threatened us with the extermination of the 
association if we didn't line up with major oil company policies, and 
in addition to the threat of extermination he also gave us a promise 
that if we did line up with major oil company policies that the major 
oil companies of the Kansas City area would support us. 

Mr. A\TLDSEN. "What do you mean by major oil company policies? 

Mr. Hartley. Policies of marketing. Among other things, Mr. 
Schuh urged us to accept a formula which he had widely advocated 
over the country and which had been widely reported in the -Gasoline 
Retailer and various subsidized publications, a formula for retailing. 

Mr. AviLDSEN. Was that to give you a bigger profit? What was 
the purpose of the formula? 

Mr. Hartley. We looked it all over and it looked like it was going 
to pinch us, but that wasn't what we were concerned about. Again 
I would like to come back to the fact that we are not concerned with 
profits in this particular testimony. We are concerned with advanc- 
ing the interests of the consumer and the public generally and saving 
the country a little bit. 

Mr. AviLDSEN. You think the National Association of Dealers is 
only interested in the dealer's "profit, trying to help him make more 
mone}\ Is that it? 

Mr. Hartley. I think that the association as it has been conducted 
up to date — I hate to make a charge, I don't like to do that — but I 
would say that all the indications that we have had are that the prin- 
cipal aim has been to jump in this bed, in this over-all atmosphere, 


with the major oil companies, and then secondarily some additional 
profit, but certainly they have operated to reduce the profits of the 
retailers, certainly. 

Mr. AviLDSEN. That is in the interest of the consumer then, is it ? 

Mr. Hartley. Well, we kind of suspect that a little bit later, after 
thej^ get the retailer controlled, the consumer interest will be some- 
what neglected. 

I would like to introduce another publication which we have iden- 
tified as having come directly from the National Association of Pe- 
troleum Retailers, but it has no identifying marks on it whatever. 

The Chairman. How did you identify it? 

Mr. Hartley. Because it came to us through the mail with other 
literature from the same association, the National Petroleum Retailers' 

The Chairman. From this distance it seems to be of the same char- 
acter as the other. 

Mr. Hartley. The other is multigraphed and this is mimeographed, 
that is the only difference, and this has no signature to it. It was 
received, as nearly as we can identify it, on September 25, 1936, soon 
after the Iowa plan went into effect. While there is no identification 
of its source, it does say at the bottom it is "from an address by Wilmer 
R. Schuh, president of the National Association of Petroleum Re- 
tailers," and gave the same address of 251 Republican Hotel, Mil- 
waukee, Wis. I read from one paragraph: "The answer has been 
before our eyes for many years," the answer of the problem to how to 
improve the conditions. In each territory there has been a supplier 
that was recognized as the market leader and other suppliers have 
merely met the competition set by the leader." 

"The dealers can do the same thing." In other words, there has 
been some place or other in the industry outside the retailers' or- 

fanization, there has been a market leader, Mr. Schuh said, quoting 
rom Mr. Schuh or purportedly quoting from him. 

Now, the retailers can do the same thing. "But there must be a 
leader and he must be one of their own men ; not an outsider or one 
in another branch of the industry. The leader must be a petroleum 
retailer and he must be folloAved by all other retailers in the 

Mr. O'CoNNELL. Who is Mr. Schuh? 

Mr. Hartley. Mr. Schuh is now chairman of the board of the 
National Association of Petroleum Retailers. 

Mr. Hewett- At that time was president? 

Mr. Hartley. At that time was president. 

Now I would like to depart from that over-all atmosphere and 
propaganda theory for a moment, in fact depart from it altogether. 
I want to hurry through this for you folks. I want to go 
to a discussion of a price- fixing formula for retailers that Avas 
brought out a while ago by interrogation, advanced by A. P. I.- 
N. A. P. R. representatives, the A. P. I. being the American Pe- 
troleum Institute and the N. A. P. R. being the Natonal Association 
of Petroleum Retailers, and I have hyphenated those two organiza- 
tions, indicating that I shall attempt to present information here 
showing that they are Avorking in collusion, on this particular thing. 

The base for the formula that we shall introduce — our first indica- 


tion of it — came in a letter addressed to my predecessor, which I 
fomid in the files, which were carefully preserved from all other 
contacts until I took charge. It is dated August 16, 1937 [reading] : 

At the present time there is a general tendency on the part of some companies 
to intrude in the retail market with the object of keeping prices down. Largely, 
this is because there has been a large differential between the cut-rate and the 
ethical marketers that has caused a big diversion of gallonage. In one in- 
stance on which we have statistics it was shown that the differential of 1 cent 
caused little diversion to the cut-rate but when this differential increased to 1^ 
cents the diversion amounted to about 6 percent of the normal gallonage. As 
the differential increased, it altered the gallonage in an almost geometric ratio 
up to a certain point. This has been causing considerable concern to a number 
of the larger suppliers. 

This is signed by E. Chat. Shanks, executive secretary of the 
National Association of Petroleum Retailers, and I am pointing out 
to you that he is calling attention to the fact, or claiming that this 
has been causing considerable concern to a number of the larger 
suppliers — 

and it is a problem on which we have been working with the object of letting 
the retailers work this situation out for themselves instead of having the 
market disrupted by suggestions from company representatives. 

Paragraph 2, on the second page: 

Another factor in the situation is that many cut-rates are now getting a 
much better quality gasoline than they did formerly. Largely this is the 
result of the Madison affair and of the suit by the Government against the 
Ethyl Corporation to break patent rights. It is also a result of not having 
a code in which thes6 various points can be worked out properly. 

Mr. Schuh came to Kansas City three times as president of the 
National Association of Petroleum Retailers, and contacted various 
members of our board. He contacted Mr. Hewett each time. On 
the third time he demanded a hearing with our board, and we 
assembled trusted members of the organization for him to talk to. I 
will read here the account of that meeting which Mr. Schuh ad- 
dressed, as I referred it to a department of the Government. 

Representative . Williams. Who prepared that account ? Is that 
your statement of what occurred there ? 

Mr. Hartley. It was prepared by the stenographer who sat in the 
next room and listened in our office, and listened to the whole conver- 
sation, and then it was signed by every one of the persons who were 
present, five men who were present, and sent as a document to the 
Department of Justicje [reading from "Exhibit No. 1267"] : 

Wilmer R. Schuh, president of the National Association of Petroleum Retailers, 
delivered an ultimatum to oflScers of the Kansas City Association Thursday, 
January 19, 1939. He threatened to revoke our charter and organize a rival local 
association. He reminded us of his success in organizing such a rival local in 
Philadelphia when A. A. Fish failed to conform. He reminded us of close con- 
tacts with major oil companies assuring him of their support in carrying out his 
threat. He gave us about two weeks to decide. We recognize the gravity of his 
threat if we fail to observe the conditions he has imposed. We believe also 
that we are being threatened because we have aided the government in investisa- 
tions and stand ready to appear before the Senate Monopoly Committee. 

Mr. Schuli's conditions to avoid destruction, resulting from organization of a 
rival local association with major oil company support, would require us to 
(1) cease opposition to major oil company marketing methods, (2) cease pub- 
licizing major oil companies as monopolistic, (3) cease offers to appear before 
flic Senate Monopoly Committee, (4) cease offers of legal aid to members who 
fed themselves unfairly dealt with by major oil companies, (5) cease giving 
voluntary information to the Department of Justice and Federal Trade Com- 
mipsion involving major oil ccr^'^nnies, (6) recognize Government indictments 


at Madison as the cause of present widespread demoralization of the retail 
gasoline market, and (7) observe a certain formula for fixing — upward or 
downward — retail prices of gasoline to be sold by members of the Kansas City 
Association. Mr. Schuh announced that N. A. P. R. had devised this formula. 
Since it is concerned only with factors between the carload trackside price and 
the retail prices, its advocacy would require us to cease claiming that major oil 
company integrate'd profits are too high. Mr. Schuh asserted that recent con- 
versations with major oil company oflicials — L. L. Marcell, of White Eagle, being 
specifically named by Mr. Schuh — 

He also named a Mr. Jackson, of the Standard Oil Co., and a Mr. 
Ball, of the Standard Oil Co., whom we don't know, of course — 

had convinced him — 

Their conversation had convinced him — 

that the Secretary of the Kansas City Association is in disfavor with major oil 
company officials. Mr. Schuh stated that the conditions he laid down were 
identical with demands of major oil companies. 

I want to correct myself there just a moment. I want to be abso- 
lutely fair and honest, because I am under oath. Mr. Schuh asserted 
that recent conversations with major oil company officials — ^L. L. Mar- 
cell, of White Eagle, being specifically named by Mr. Schuh — ^had 
convinced him. He mentioned Mr. Jackson and he mentioned Mr. 
Ball, but their conversation didn't convince him, but that of Mr. 
Marcel did [reading further from "Exhibi^No. 1267"] : 

Mr. Schuh stated that the conditions he laid down were identical with 
demands of major oil companies. 
A question asked Mr. Schuh by Mr. Leonard Johnson — 

Who was present at the meeting, a former president: 

What could we do now since we have already filed a complaint with the Justice 

Answer by Mr. Schuh: You could refuse to give them any assistance or co- 
operation and let them conduct any investigation without your help. 

Another question asked Mr. Schuh by Mr. Joh^fion : How shall we go' about 
to accomplish this retail price fixing legally? * 

Answer by Mr. Schuh: One member from each brand would have to cciitact 
the manager of his supplying company individually as they would not meet and 
decide on this in a group. 

He further stated — 

Well, this doesn't concern anything. It simply mentions the fact 
that there would be a spread between the trackside price. 

Mr. O'CoNNixi'- Bid you read all of that letter? 

Mr. Hartley. No; I didn't quite read it all. I am offering the 
testimony. I didn't offer the letter, because they are all we have in 
our files. It is just a copy of the letter. 

The Chairman. This is the letter that you sent to the Department 
of Justice, is it not? This "v^^as a letter dated January 23, 1939, and 
addressed to Thurman Arnold, Assistant Attorney General? 

Mr. Hartley. That's right ; yes, sir. 

The Chairman. Signed by yourself as L. A. Hartley, executive 
secretary, Petroleum Retailers Assodation of Greater Kansas City, 
and signed also by Leonard Johnson, Qtho L. Dill, Jack Maddigan, 
Ed. O'Laughlin, treasurer, and A. W. Hewett, president. 

Unless there is objection, I think this letter ought to go into the 

Mr. Snyder. No objection. 

(The letter referred to was marked "Exhibit No. 1267" and is in- 
cluded in the appendix on p. 9309.) 


The Chairman. Do I understand you to testify, Mr. Hartley, and 
you to testify, Mr. Hewett, that the statement contained in this letter 
is true, that Mr. Schuh, appearing before you as a representative and 
official spokesman of the National Retail IPetroleum Dealers Associa- 
tion — is that the correct name? — the National Association of Petro- 
leum Retailers 

Mr. Hartley (interposing). That's right; that's correct. 

The Chairman. Advised you that unless you ceased offers to appear 
before this committee and testify with respect to the petroleum indus- 
try, steps would be taken to eliminate your association ? 

Mr. Hartley. That is literally true, just the way you have said it, 
just exactly as you have said. 

The Chairman. Is that your statement, Mr. Hewett? 

Mr. Hewett. That is right. 

Mr. Hartley. May I repeat my understanding of what you have 
said, so as to be sure I understood you? What I understood you to 
say was, to discontinue our offers t6 appear. Yes ; that is correct. 

The Chairman. And what did you say to him ? 

Mr. Hartley. We let him go clear on through, and then told him to 
jump in the. lake, the way we do it down there, or the Kaw River, or, 

The Chairman. Mr. Hewett, what is your statement with regard 
to this? 

Mr. Hewett. It was decided we wquld go our way and let the 
National go their way. 

The Chairman. Did you hear him make that statement ? 

Mr. Hewett. I heard him make those statements; yes, sir; as well 
as the members that have signed that. 

Representative Williams. Well, let me see that I understand this. 
This statement contained in this letter doesn't purport to be an exact 
copy of what he said, does it or does it not? 

Mr. Hewett. Those are the threats 

Representative Williams (interposing). "The threats" is a conclu- 
sion. That statement of what is a threat, of course, is purely a con- 
clusion. Does this letter purport to be the exact language that he 

Mr. Hartley. No ; it is our understanding of that. It is what we 
received, and after we had interrogated him. 

Representative Williams. These are the conclusions that you all 
reached from what he told you there in that conversation or in his 
talk with you? 

Mr. Hartley. That's right. 

The Chairman. It is your understanding of the purport of what 
he said to you. 

Mr. Hewett. That is exactly it. 

Mr. Hartley. And we interrogated him over and over again to 
make sure we had the correct understanding, and he gave us to under- 
stand that we were correct. 

Representative Williams. Did he see your statement after you 
wrote it up ? 

Mr. Hartley. Oh, no. The reason we didn't do that was because we 
felt we were dealing with the major oil companies, and to hand him 
that statement would have been to inform the major oil company- oppo- 


sition. So we didn't care to put it in the hands of our opposition, what 
little thunder we might have. 

The Chairman, It is 25 minutes of 1, Mr. Hartley, and if you will 
be good enough to suspend now the committee will recess until 2 : 15. 

(Wliereupon, at 12: 35 p. m., a recess was taken until 2: 15 p. m. of 
the same day.) 


The hearing was resumed at 2 : 30 p. m., upon the expiration of the 

The Chairman. The committee will please come to order. Are you 
ready to proceed, gentlemen? 

Mr. Hartley. Mr. Chairman, if it please the committee, I would 
like to cease my direct testimony at this time and submit the oppor- 
tunity to President Hewett. 

The Chairman. Very well. 

roTjR types of retail outlets 

Mr. Hewett. In following on, not on the lines pursued by Mr. 
Hartley but just merely the actual conditions as they have been re- 
ported to me through the past many years of experience in retailing 
petroleum products, our statement classified three types of outlets. 
Since that statement was prepared and filed there has been added a 
fourth type of outlet to those. Briefly, I will summarize those differ- 
ent types of retail outlets. 

No. 1 is the company owned and company operated by salaried 
employees, which is the same characteristic as existed before the adop- 
tion of the Iowa plan or dealer marketing plan. At the time of 
preparation of this statement there was in operation at that, time only 
four in the greater Kansas City area. At the present time Skelly Oil 
Co. has. taken over the operation of a considerable number of their 
stations on a salaried basis. 

The second type of retail outlet is the station that is owned or leased 
by a major oil company or a jobber and then re-leased to a lessee, who 
depends upon the profits of his operation for his income. 

It has been developed here that these stations operated by lessees of 
suppliers are 100-percent stations and do obtain exclusive merchandis- 
ing contracts. There is no set type of lease that these stations operate 
under so far as we can find out. They seem to change with irregularity 
of periods of time to suit the needs of our conflicting marketing 
program in the area. 

Some of them have 5-day cancelation clauses, some of them run for 
a year; that is the longest time that any lease that I know of, or can 
find out about, in Kansas City runs. 

Irregardless of whether there are 5-day-cancelation ^clauses, 30-day- 
cancelation clauses, up to 1 year, the lessee is pretty much under the 
control of the supplier through his marketing methods. That is, the 
lessee, if he has some money to invest — and he must have to take over 
the operation of the station ; he must have some at least — doesn't know 
whether he will continue in operation as a retailer in that particular 
location for a period longer than 1 year. If his operating methods 
do not please his .supplier, it is quite possible that his lease will not be 
renewed. Tha.t has happened. 


I know a good many of our members that today are threatened 
with the fact that their lease will not be renewed. One of them in 
particular has an investment in his station of stocks and equipment 
that belongs to him upward of $2,500. 

The Chairman. You say you know that these have been threatened 
with cancelation of their leases? 

Mr. Hewett. I know they have been executed. 

The Chairman. You know what have been executed? 

Mr. Hewett. The failure, that is the cajicelation of the lease, that 
is the supplying company did not like the attitude of a particular 
lessee and canceled the lease. 

The Chairman. Your statement was that you knew of lessees who 
were threatened with the failure or the cancelation of their leases. 
That is what I was asking you. 

Mr. Hewett. Yes ; that is true. 

The Chairman. Why? Canceled for what reason? 

Mr. Hewett. Because the merchandising method that this lessee 
employs does not coincide with the program advocated by the sup- 
plying company. 

The Chairman. Well, in what way? Can you fix it definitely? 

Mr. Hev/ett. In this particular instance it is because he is working 
on too small a margin. 

The Chairman. Does that mean that he is cutting the price of 

Mr. Hewett. That is right. 

The Chairman. He is selling at a margin smaller than that of 
other uealers? 

Mr. Hewett. Considerably smaller than that of other dealers. 

The Chairman, But isn't it your position that the margin for 
dealers is not sufficient to enable them to operate at a profit? 

Mr. Hewett. That is my position. 

Tlie Chairman. So that when a dealer, as this one, cuts his margin 
so low that the supplier objects to it, he is practically removing all 
possibility of his operating at a profit, if your premise is correct. Is 
that right? '^C ^ 

Mr. Hewett. He tells me that he is not operating and making 
money out of it. He has his own reasons for that method of opera- 
tion and it isn't his own choice that he likes or employs that method 
of marketing. It was strictly to meet competition set up amongst 
the street. 

The Chairman. Well, what is your experience with respect to the 
number of independent dealers now operating in the area served by 
your association? 

Mr. Hewett. Our association serves about the same proportion to 
which the total volume of gasoline is sold in the State of Missouri. 
That is, classify it this way: Controlled outlets, as Mr. Hartley 
pointed out, sell 57 percent of the total volume in the State of Mis- 
souri. Dealer outlets selling nationally branded products; t^.at is, 
jobbers, to their dealers sell 22 percent. All others 21. 

Now, then, our representation in our association is approximately 
in that proportion. 

The Chairman. I don'f know that I have made myself clear or 
that I understand your answer. What I am trying to determine is 


what your experience has been with respect to the change in the 
character of stations in this area as divided between stations which are 
wholly owned and operated by majors, stations which are owned by 
the majors and leased by them, stations which are owned by inde- 
pendents and are covered by the so-called 100-percent clause or some 
contract which binds them to deal exclusively m the products of the 
supplier, and the number of retailers who are free to buy and sell 
whatever gasoline or whatever petroleum products they please. Now, 
those four .categories cover about all of the dealers, do they not? 

Mr. Hewett. That is right. I was coming to that just a little fur- 
ther down the line. I will answer that now. The percentage or 
the trend is toward a higher percentage of controlled outlets, either 
through major suppliers, the jobbers supplying independent sta- 
tion, that seems to me an absorption, maybe I should put it this 
way, of control over stations supplied by jobbers. 

The CHAmMAN. When you speak of control, by whom is this con- 
trol exerted? 

Mr. Hewett. That is exerted by the supplier. In the case of my 
first or second type of outlet that is the -lessee station. The third 
type of outlet is the outlet supplied either by jobbers or directed 
from the major oil company where the operator leases the property 
from the disinterested party and gets his supplies sometimes with 
md sometimes without a sales agreement. 

The Chairman. Well, are all the suppliers to whom you refer when 
you'speak of controlled stations, that is to say. Outlets that are con- 
trolled by the suppliers, are all of them majors ? 
Mr. IfewETT. Oh, no ; I don't mean that inference at all. 
The Chairman. 00 that some suppliers who are -not majors also 
exercise this control of which you speak. 

Mr. Hewett. That is true. That is done in some of the jobbers. 
■ The CpAiRMAN. And what proportion do they occupy with respect 
to the whole business? 
Mr. Hewett. The jobber retailers that are controlled? 
The Chairman. Such suppliers exercising this same degree of con- 
trol. As I understand your story now, it is that the retailer is fall- 
ing under a constantly greater degree of control by the supplier and 
that this sort of control is exercised by the supplier whether or not 
he is a major supplier. 
Mr. Heweit. That is right. 

The Chairman. It might be a so-called independent supplier or a 
jobber which would exercise this control over the policies and pro- 
gram and activity of the retailer. 

Mr. Hewett. A lot depends upon the interpretation of independ- 
ent supplier. 

The Chairman. Well, of course I am doing the best I can to get 
clear in my mind what you mean. You said a moment ago, in answer 
to my question, that not all of these suppliers are majors, 

Mr. Hewett. They are not majors, a good many of them. We 
have 22 jobbers in Kansas City-r-maybe this will explain it — 22 
jobbers in Kansas City, who distribute nationally advertised prod- 
ucts. Now then, some of these jobbers have the sales agreement the 
same as the major companies. Some of them own stations and lease 
to operators the same as the major companies. 

124491 — 40 — pt. 16, sec. 3 15 


The Chatkman. So that the tendency of the supplier to control 
the policy of the retailer is "oticeable regardless oi whether or not 
the supplier is a major. 

Mr. Hewett. That's right. ' 

The Chairman. But the effect upon the retailer is the sailie. 

Mr. Hewett. The effect is the same exactly. 

To further develop that third classification of outlets, jobbers recog- 
nize tank-wagon prices set by the major oil companies to the extent 
that they follow it unless it is necessary to deviate from it to get the 



The Chairman. And do you want the committee to understand that 
the position of the absolutely independent retailer who is not subject 
to control or suggestion from any supplier, big or little, is getting less 
and less important in the industry? 

Mr. Hewett. That's right, that's right ; in the retail area in Kansas 

The Chairman. And you feel that that is bad for the industry ? 

Mr. Hewett. I feel that it is bad for us. 

The Chairman. Of course, it is obviously bad for the retailer who 
is being pushed out. Is it bad for the consumer? 

Mr. Hewett. It is bad for the consumer. 

The Chairman. Why? 

Mr. Hewett. In this respect. If history repeats itself and the 
retailer comes under absolute domination, we will possibly be subject 
to higher prices to the consumer. 

The Chairman. You say "possibly." 

Mr. Hewett. That is, if history repeats itself. 

The Chairman. What is the effect upon the supplier of this trend ? 

Mr. Hewett. ^Suppliers, jobbers in general, have become more 
numerous in Kansas City. Their condition I don't know, financially, 
as to whether . they are getting stronger or weaker. Several years 
ago you could name the jobbers on the fingers of one hand. Today 
there are 22, either jobbers or, as I have heard them described, second- 
story distributors, operating within the area. 

The Chairman. Well, aren't we dealing with a subject which is 
very similar to that of the chain store in other articles of merchandise? 

Mr. Hewett. That's right, that's right. 

The Chairman. And your complaint is that the independent local 
dealer is being gradually pushed out of the business. 

Mr. Hewett. It seems very much that way to us, sir. 

The Chairman. And that the place is being taken by a distributor 
who operates in a much larger, in a broader, sphere than the local 
distributor operates. 

Mr. Hewett. I think that is true. 

The Chairman. Now, I wish you could give us your definite opin- 
ion, and whatever facts you may have to support it, as to the actual 
effect, not your supposition but your actual knowledge, as to the 
actual effect upon the consumer. What is the public interest, in 
other words? It is quite clear to us, I think, that the retailer feels 


that his interest is adversely affected by this development. Now 
what is the effect upon the interest of the consumer, the public? 

Mr. Hewett. The public interest is pretty much all wrapped up 
with ours as retailers. We can only serve the public better ^ 

The Chairman (interposing). Tell us the exact facts upon which 
you base that conclusion. 

Mr. HeWett. Well, I hate rather to be driven into conclusions 

Mr. Harjlet. May I offer a few facts here ? 

The Chairman". Certainly ; we are after the facts. 

Mr. Hartley. You know that the effect upon the retailer has been 

The Chairman. That is the way the retailer seems to look at it. 

Mr. Hartley. That seems to have been rather established here. 

We have had the condition in Kansas City which was bordered 
very closely upon violence of the extremest kind, which endangered 
the lives of consumers who came into our stations. We tried to 
publish those facts in the Kansas City Star, painstakingly raised a 
sum of $400 to buy a quarter-page advertisement in the Kansas City 
Star, to indicate that .whenever they came into a station that was 
definitely marked as a member of the Petroleum Retailers Associa- 
tion, that there their families would be safe. These service stations 
are semipublic conveniences, where people come in at all times and 
all hours. 

We, in the meantime, since the gasoline price war came on, as a re- 
sult of the conditions Mr. Hewett brought out. began receivinnr offers. 
They always came anonymously. We couldn't positively identify 
the sources, couldn't go before a crand iury and testify to anything 
as a fact, but we had reason to believe that this came from bona fide 
sources, of offers to blow up any station we wanted blown up in the 
• area; the highest price was $30, guaranteed results. Those stations 
were beina: entered constantlv bv women and children, our customers. 

The Kansas City Star refused the advertising because we had 
iniected into the advertisement some sort of statement about some 
of <^hese- companies being pirates. 

The Chairman. Well^ again that doesn't answer the question; 
You are not coming to what I have in mind. I want to know what 
are the actual facts upon which the conclusion is based that the price 
to the consumer would not be higher if there were a different situa- 
tion in the industry. You see, the contention is made upon the 
other side that competition for local outlets tends to keep the price 
down. Mr. Hadlick appeared before this committee with a chart 
from a I'ournal, a petroleum iournal of one kind or another, in which 
there was purported to be shown the profit or loss in various branches 
of the industry. A large profit was shown in production, a large 
profit was shown in transportation, a large loss was shown in refining 
and marketing. 

Now. the independents come to us and say that if the independents 
were able to operate at a profit, the price to the consumer would 
be higher. Now I want to know how you get that conclusion. 

Mr. Hartley. I don't believe that all the addition and subtraction 
in the world would ever change the figure as it is so obviously pre- 
sented, and that is that if the price is raised so that the filling . ta- 


tion can get more in their margin, and if it isn't decreased some 
place else in the tank-wagon price, why, obviously the consumer will 
have to pay more. Therefore, we have adopted the course in all 
of our procedure of trying, as we have expressed it out there, to kick 
a hole in the top of the tank-wagon price. In other words, we 
are trying to get something out of the refinery. It can't be done 
now as long as the major oil companies control the tank-wagon 
price and the refinery price and the tank-car price and the jobber 
price. There isn't any hope for the consumer until we improve our 
condition ; that is the answer, isn't it ? 

The Chaikman. Of course, this is a very realistic matter, and so 
far as I am looking at it now, it is no question of right or wrong, 
don't you know. No question of morals is involved here at this 
particular phase of it. It is a question of the relative value to the 
consumer, relative value to the public of an integrated industry and 
a nonintegrated industry, and the answer to this question might apply 
to any other industry as well as to petroleum., don't you see. 

Mr. Hartley. We have no quarrel with integration. We want to 
go on record to that effect. We have stated that in our statement. 
We have no quarrel whatever with integration. So far as we are 
concerned, we can't see any benefit whatever to the consumer nor 
to the retailer from all these divorcements. We have gone on record 
in our statement that if you divorce all these departments, you will 
have just one more monopoly than you have severances. We are not 
interested in the question'. In fact, just from an engineering stand- 
point it looks like the perfectly integrated company would be able 
to serve society better. 

The Chairman. Now that is a very interesting point of view — what 
I am trying to get. 

Mr. Hartley. That is our Board's view. I am sorry I injected 
myself into, this, 

Mr. AviLDSEN. On that same theory, wouldn't a consumer coopera- 
tive be the most efficient system of merchandising, in which the public 
became a partner in the merchandising enterprise ? 

(Mr. O'Connell assumed the Chair.) 

Mr. Hartley. If I were to give my own personal view and the 
view of those cooperatives who are associated with, us, I would say 
yes to that question. I believe that we would have members who 
would disagree. 

Mr. AviLDSEN. And you think the consumer's cooperative is the 
most efficient method of retailing gasoline? 

'^Mr. Hartley. I would say that the consumer's cooperative under 
the Rochdale plan, with the technological advantages of the major 
oil companies. If you would allow me to give a real honest answer 
to that question, it would be something like this: This whole thing 
could be resolved beautifully if the retailer, the consumer, and the 
integrated companies and these other companies — if we could all just 
sit down together and have an understanding and cooperate. 

Mr. AviLDSEN. But that is getting a little off from the cooperative 
idea, isn't it ? ' 

Mr. Hartley. Yes ; it is. 

Mr. AviLDSEN. Now you are bringing in the retailer. I thought 
you said a moment ago a co-op is the most efficient. 


Mr. Hartley. I would say the consumer's cooperative with the 
integrated advantages through their technological equipment, and 
also I would think I would give credit to the integrated companies 
for a splendid development of management, I mean the managerial 
ability of their officials. I think it has a very high standing. There 
isn't any question about it. 

Mr. AviLDSEN. Do you include marketing in that ? 

Mr. HARTLtEY. Yes; eyery division. I don?t want to be misunder- 
stood here at all as being at all opposed personally to the fine quality 
of leadership that the majors havB. 


Mr. Shaughnessy. We have a difficult question from the market- 
ing angle, namely that the dealer's margin cannot go up so far as 
the consumer is concerned without the tank-wagon price coming 
down. Is it your opinion that the tank-wagon price is not com- 
petitive, that the companies don't compete in their tank-wagon 

Mr. Hartltt. It isn't oui opinion, it is our experience. 

Mr. Shaughnessy. What is that experience founded on? 

Mr. Hartley. Actual observation of tank-wagon prices over a 
broad area and a long period. 

Mr. Shaughnessy. They are always the same ? 

Mr. Hartley. There are 11 major oil companies operating in our 
district and all we have heard by actual contacts with persons in 11 
States is the same thing. 

Mr.. Shaughnessy. Don't those major companies compete against 
one another for gallonage ? 

Mr. Hartley. I think they compete about like the departments 
of a store compete. A big department store will have a great many 
departments organized, and they have quotas for one another and 
thisj encourage each other to compete rather actively, and the^ get 
one another together from time to time and quiz them and find 
out if this girl sold 10 cents more today than she did yesterday. 

Mr. Shaughnessy. I think you may have misuiiderstood my ques- 
tion. I don't mean competition as between service stations, I mean 
competition as between companies. 

Mr. Hartley. I think that will extend to companies. 

Mr. Shaughnessy. You mean to say the Texas sales manager and 
the Standard sales manager get together? 

Mr. Hartley. Oh, no ; I don't think tliey get together in that way. 
I think they get together for other purposes, but not for that. 

Mr. Shaughnessy. For what purposes do they get together? 

Mr. Hartley. If you want that answer, I met with them one time ; 
I met with a group of major oil company officials in the Kansas City 
Club at luncheon and we discussed things very generally and the sum 
of our discussion was that the margins should be reduced in the 
retail places, so I do think they get together once in a while for things 
like that. 

Mr. Shaughnessy. Did you agree that the margin should be 
reduced ? 
Mr. Hartley. No. 


Mr. Shaughnesst. That was some of their discussion ? 
Mr. Hartley. That is right. 

Mr. Shaughnesst. Why did they think the margin should be 
reduced ? 

Mr. Hartley. I think they were all very honorable and honest 
gentlemen and just felt like they ought to have a lower margin so 
that each one of them could sell more gas. 

Mr. Shaughnessy. You mean that they thought the price should 
come down. 

Mr. Hartley. Yes ; at the expense of the retailer. 
Mr. Shaughkessy. That is if the price should come down it should 
be at the expense of the retailer. 

Ir. Hartley. No ; that the price should come down at the expense 
the retailer, not if it should. 

Mr. Shaughnesst. There is one thing that the major companies 
in their testimony have indicated, that there is competition in the 
retailing of gasoline, and that competition is primarily in securing 
dealers who will distribute their product. , •■ • - ^ 

Mr. Hartley. I think that is true, I would agree to that. 
Mr. Shaughnesst. There are two things, to push, as much gallon- 
age through as many dealers as possible. Under your theory, in 
which there is what amounts to discrimination against the dealer, 
how do the major companies ever succeed in getting new dealers 
in order to push their gallonage? 
Mr. Hartlet. Woody can tell you that. 
Mr. Shaughnesst. Go ahead, Mr. Hewett. 

Mr. Hewett. On the tank-wagon prices of the major oil company, 
that is if it requires an additional rebate, it is secured through one 
of their jobbers. 

Mr. Hartlet. He wants to know. Woody — I will answer that ques- 
tion if you don't mind. 

Wliat the man wants to know is how they get dealers if these stations 
are in such bad condition. They usually have a waiting list. In order 
to test that thing we ran an advertisement for 2 weeks in the Kansas 
City Star to find out how they got their dealers. We had 157 applica- 
tions from all types of people for stations. Our advertisement was 
worded this way: "Filling stations failing daily." Wasn't that it? 
Mr. Hewett. That is right. 
Mr. Hartlet. "Filling stations failing daily." 
Mr. Hewett. "See us and save money." 

Mr. Hartlet. "See us and save money." It was deliberately worded 
so people would dodge away from it, and yet we had 157 applications 
in 2 weeks, many of them by letter, in ages ranging from 72 down to 21. 
One young woman and a young man, a wife and husband, came into 
my office there and confessed that they had $12,500 that they had in- 
herited, wanting to put it into a filling station. It isn't a bit aftrtrouble 
to rent these filling stations. You have always got a sucker right 
around the corner — wait until they come in. . 

Mr. Shaughnesst. I don't know how a business could run if it was 
based primarily upon luck. You would think you would want more 
qualifications than a person who was dumb enough to go into the tilling 
station business in order to push gasoline. 

Mr. Hartley. You would think that but it doesn't always work out 
that way. 


Mr. Shaughnesst. Would that be true in a territory that was not 
overbuilt ? 
Mr. Hartley. No ; that would be my answer to your question. 
Mr. Shaughnesst. Have there been any marketers of any substance 
come into the Kansas- City area in recent years? 
Mr. Hartley. Any substance? 

Mr. Shaughnesst. Hasn't the number of major companies market- 
ing in Kansas City been more or less the same in recent years ? 

Mr. Haetlet. There has been one less in the last 2 years. Tidewater 
dropped out but Texaco took all of Tidewater's distribution instantly. 
Mr. Shaughnesst. So in an overbuilt territory we don't have the 
competitive condition of new companies, companies not previously 
marketing in that area, coming in and offering concessions in order to 
secure dealers, or anything of that sort? 
Mr. Hartley. I think that is correct. 
Mr. Shaughnessy. You think that is correct? 
Mr. Hartley. Yes.. 

Mr. Hewett. I know of none of them. 

Mr. Snyder. Mr. Hartley, do you think if all of the filling station 
operators were completely divorced from supplier domination that 
these operators in a group would tend in their purchases to drive down 
the tank wagon price ? 

Mr. Hartley. There isn't any question about that. 
Mr. Snyder. Is that the reason why you think; the consumer would 
benefit if the independents were relieved from their contractual obli- 
gations to the integrated companies? 

Mr. Hartley. Yes, sir ; in substance our whole recommendation be- 
fore this committee would be that we would like to have the cable cut 
which now ties us and anchors us to our suppliers through a mer- 
chandising contract and a purchasing agreement, so that we would be 
free to purchase our supplies at the source of our supplies. 

Mr. Snyder. Let me see how far you will go with that. Do you 
want to eliminate the lessee relationship? 

Mr. Hartley. I don't see how you could eliminate that, Mr. Snyder, 
when these companies own these stations. They are there, and so 
they would have to lease. 

Mr. Snyder. Then you want to eliminate the contract between the 
dealer and the supplying company covering the purchases of gasoline 
and other products from the supplier. 
Mr. Hartley. That and one thing more. . 
Mr. Snydeks What is that? 

Mr. Hartley. Severing the cable that anchors us to the major oil 
company suppliers through these merchandising contracts and agree- 
ments and identify the major oil company dealer or the independent 
oil company dealer, or company, I mean, as an employer whenever 
in any way he interferes with station management. 

Mr. Sis^yder. Now, do all lessees of major company stations have 
merchandising contracts with their suppliers? ' - , 

Mr. Hartley. Answer that. Woody, j 

Mr. Hewett. That is a part of the lease of the major oil company 
to their lesee, to buy theii- .supplies from them as their supplier. 

Mr. Snyder. Do you mean that the lease and the merchandising 
contract are one document? 
Mr, Hartley. No. 


Mr. Hewett. No. 

Mr. Hartley. No ; never, seldom ever, but they usually accompany 
one another. 

Mr. Sntder. Do they refer to one another? 

Mr. Hartley. I have examined a lot of those leases and a lot of 
those merchandising contracts and some of them do and some of 
them don't. 

Mr. Snyder. Frankly, I, myself, have examined probably thousands 
of these leases and never found any reference at all to what mer- 
chandise will be sold to the station. 

Mr. Hartley. Very seldom. 

Mr. Snyder. It seems as if the merchandising contract is really the 
thing you are complaining about as being the evil influence. 

Mr. Hartley. And indirect management, 

Mr. Snyder. Indirect management is the supervision in regard to 
prices and other methods? 

Mr. Hartley. Prices and management, generally, of which prices 
are the crux of the situation. 

Mr. Snyder. Take a filling-station operator who owns his own 
property, has no lease with any integrated company. Does he have 
a merchandising contract with the supplier? 

Mr. Hewett. I have a sales agreement. That is the outlet that I 

Mr. Snyder. How many years does that sales agreement run? 

Mr. Hewett. It runs for 1 year and is automatically renewed unless 
notice of cancelation is given I believe it is 30 days prior to expira- 
tion of that sales agreement. 

Mr. Snyder. Does it cover anything more than the purchase of 
gasoline and lubricants and the prices you pay for them? 

Mr. Hewbtt. No. If you have reference to exclusive merchandis- 
ing, no. 

Mr. Snyder. There is no exclusive feature? 

Mr. Hewimt. No exclusive feature. 

Mr. Snyder. So then the exclusive feature of your operations for 
the Texas Co. comes by way of the oral instructions! and advice from 
the Texas Co.'s manager. 

Mr. Hewetf. Well, if there is any; yes. 

Mr. O'CoNNELL. What do you mean if there is any ? Is there any ? 

Mr. Hewett. In our district there happens to be none. 

Mr. Hartley. He means on Texas Co. 

Mr. Hewett. So far as Texas Co. ife concerned. There are possibly 
reasons for that. One is, a few years ago, it has been stated here, 
they ran into some difficulties in merchandising accessories and they 
have an agreement that they will be out of the accessory business. 
It seems as though so far as our representative in Kansas City is 
concerned, that he is not willing to go out on a limb and make any 
statements with reference to how we shall operate. Another factor 
that might be considered in the Kansas City area so far as the Texas 
Co. is concerned is that it is new in its distribution there, compara- 
tively new. They have been in for several years, but the growth has 
been slow, the development has not been rapid, it has not been made 
by making cash allowances or offering extra discounts, and they are 
having an increase in volume of business, and so long as they can 


continue an increase in volume of business, they seem reluctant to try 
to influence the operator orally. 

I have one salesman ; I have heard him make the remark only, not 
directly as a command that I should follow, but he says, "I believe 
if I was operating this station that I would be competitive." 

Mr. Snyder. In other words, he means meet the lower prices of 
your neighbor next door. 

Mr. Hewett. Meet the prices. 

Mr, Snyder. And that is what you have refused to do? 

Mr. Hewett. That is what I have refused to do. So long as we 
don't surrender to control, we have the hope of maybe establisjiing 
better relationships. 

Mr. Snyder. You claim it isn't necessary for a dealer to stay in 
business to meet all the competition around him. 

Mr. Hewett. It isn't necessary in my case. 

Mr. Snyder. Take the average dealer, take the majority of the 
dealers in Kansas City. What would their average experience be? 
Would they be able to operate like you do? 

Mr. Hewett. No; I think not. 

Mr. Snyder. What is the diiference between your situation and 
their situation that enables you to operate as you do and they have to 
meet competition? 

Mr. Hewett. I just partially explained that this morning, that we 
operate a service station, if we might make a little distinction be- 
tween service and filling stations. We have other ways of making 
profit other than gasoline. Another reason for making that state- 
ment that others might hot be able to do the same as we do, is that 
my partner and I, as to combined experience in the retail field in 
Kansas City, have 17 years on my part and 19 years on his previous 
record in that particular area, and we have what is known as a 

Mr. Snyder. What is your price today at the service station? 

Mr. Hewett. Seventeen and four-tenths. 

Mr. Snyder. What are the prices of your competitors qn a similar 
grade of gasoline? 

Mr. Hewett. Ranging down to 13.4^ in various parts of the town. 

Mr. Snyder. Four-cent differential ? 

Mr. Hewett. Four-cent differential. 

Mr. Snyder. Do your customers believe that your service is worth 
4 cents? 

Mr. Hewett. They continue to- trade with us. 

Mr. Snyder. I would like to ask this question on this subject. If 
you did not have your merchandise agreement with your supplier 
what freedom of action would you have that you do not have now| 
if any ? 

Mr. Hewett. I have considered the cancelation of that sales agree- 
ment. I was offered a major branded product, trucked directly from 
the refinery, at 1 cent above refinery cost, refinery price; that is, I 
would pay the trucker the refinery price plus taxes, plus 1 cent for 

Mr. Snyder. How does that price compare with your present tank- 
wagon price? 

Mr. Hewett. Just a moment. I don't know now just what the price 


is today. I didn't cancel my contract and haven't paid much atten- 
tion to the refinery price. At that time it was approximately 5 cents, 
4 cents tax and 1 cent transportation; it was 10 cents. At that time 
I was paying tank-wagon price of 11.9^ taxes included. 

Mr. Snyder. So you would be saving how much by this other opera- 

Mr. HJEWKiT. 1.9^ per gallon. 

Mr. Snyder. Are there any benefits that you obtain from your sup- 
plier under your present arrangement that you wouldn't enjoy if you 
had this type of operation ? 

Mr. Hewett. Yes; under that particular type of operation I would 
not have the use of credit cards. That is the only thing. 

Mr. Snyder. What benefit to you is the use of the credit card ? 

Mr. Hewett. Oh, in our particular locality I think the credit card 
does bring us considerable business. However, most of our credit-card 
users are where we have shifted the burden from ourselves to the 
supplying company. 

Mr. Snyder. The Texas Co. assumes the burden for the credit ? 

Mr. Hewett. That is right. They don't carry all of it by a consid- 
erable amount. 

Mr. Snyder. Are those credit-card customers coming into your sta- 
tion issued credit cards on a Nation-wide basis or just a local basis? 

Mr. Hewett. A Nation-wide basis, 

Mr. Snyder. In other words, they are tourists passing through ? 

Mr. Hewett. Some of them are tourists. 

Mr. Snyder. Are some of them business houses that have fleets of 
trucks ? 

Mr. Hewett. No; we have no commercial business at all at our 
particular location. 

Mr. Snyder. Do you mean, then, that the credit-card holder just 
drives an automobile as a salesman or somebody in business who may 
not be classed as a tourist but travels ? 

-Mr. Hewett. Quite frequently with us he is just a resident in our 

Mr. Snyder. Is he signed up with the Texas Co. on the Nation-wide 
plan or the local plan ? ^ 

Mr. Heweti. He is signed up on a Nation-wide plan. 

Mr. Snyder. Have you "any idea how much that costs the major 
company ? 

Mr. Heavett. I have no idea at all. 

Mr. Snyder. Do you give him a discount ? 

Mr. Hewett. No discount. 

Mr. AviLDSEN. Do all the major companies have credit card systems 
in Kansas City? 

Mr. Hewett. I think the great majority of them; I couldn't say 
whether all of them do or not. 

I want to explain here just a little further about another proposi- 
tion that I seriously considered. This included the use of the credit 
card. I had the opportunity of buying gasoline at 1 cent a gallon 
above delivered carload price, or 1 cent under tank-wagon price, with 
the privileges of all the advertising and with the privileges of the 
use of the credit card. That was from a jobber of a nationally 
advertised product. 


Mr. AviLDSEN. Why didn't you take that proposition? 
Mr. Hewett. I considered the different factors in our particular 
location, and I had competition in this same product within a few 
blocks, whereas under the situation I am still operating under, I have 
no competition for many blocks; the city limits on one side and 24 
blocks on the other. 

Mr. AviLDSEN. Then you do admit that there must be real com- 
petition between the major companies or the major companies and 
the jobbers of some other major company. 

Mr. Hewett. And the jobber. There seems to be some competition 
in there between the jobbers. 

Mr. AviLDSEN. In one case you were going to deal with a refinery. 
Is that through a jobber? 

Mr. Hewett. No; that was through a fellow that has a haulmg 

Mr. AviLDSEN. But you would have bought your oil not from him 
but from a jobber. . - r^ -. ^ 

Mr. Hewett. I would have 'had to buy my oil from some jobber. 
Mr. AviLDSEN. I mean the gasoline. 

Mr. Hewett. The gasoline would have been through him from the 
Acting Chairman O'Connell. Through the jobber? 
Mr. Hewett. No. 
Mr. AviLDSEN. Hauling contract? 

Mr. Hewett. He has, or did have at that time, a contract whereby 
he could purchase gasoline at the refinery and he would sell that to 
me at refinery price plus 1 cent a gallon transportation costs. 
Mr, AviLDSEN. All he wanted was the hauling job, 
Mr. Hewett. All he wanted was the hauling job and whether or 
not I had heard it intimated that he did shave the refinery price as 
quoted in the Journal of Commerce, through maintaining volume. 
Mr. AviLDSEN. But he was willing to sell you at his cost. 
Mr. Hewett. That is presumably it. What his contract was with 
the refinery, I don't know. 

Mr. AviLDSEN. All these things do indicate that there is competition 
between the major oil companies and that this tank-wagon price 
isn't as rigid as mi*?ht have been indicated. 

Mr. Hewett. It is rigid so far as major oil suppliers in their own 
tank wagons are concerned, but not among the jobbers of the major 
oil companies. 

Mr, Hartley. May I inject something here ? There is no competi- 
tion at the tank wagon — positively no competition at the tank wagon — 
of any of the 11 major oil companies in the Kansas City area. They 
have identical prices, and their prices are maintained identically 
simultaneously on every rise and every fall. 

Mr. Snyder, Let me ask Mr. Hewett a question on Ihat, since he is 
the dealer. You say you have been in business 17 years. 
Mr. Hewett. Seventeen years. 

Mr. Snyder. Do you know the number of instances during that 
period of time when the tank-wagon price of the majors has been 
different ? 

Mr. Hewett. No; I don't ever remember when the tank-wagon 
prices from the major oil companies, from their own tank trucks, 


differed for any appreciable length of time. I think there are two 
exceptions to thai. One exception was June 14 of this year, when 
Sinclair announced a half -cent increase in the tank-wagon price of 
gasoline, which was followed by 9 of the other majors in Kansas City 
on the same day, but was only followed by Standard Oil of Indiana 
on tMtd grade. The duration of time of that difference was less than 
a week, when the 10 all backed down to Standard's price. 

A similar condition existed last August, in the latter part of August. 
I don't remember the exact date when Shell led with a three-tenths of 
a cent increase in tank-wagon price. That was followed the next day 
by two or three and the next day by the majority of them. Again 
Standard Oil of Indiana refused to move up and increase their tank- 
wagon price, and the whole movement fell through, and they backed 
down in less than a week's time. 

(Senator O'Mahoney resumed the Chair.) 

Mr. AviLDSEN. In view of what Mr. Hewett said, Mr. Hartley, would 
you want to change your statement, then, that there has never been 
any difference between the tank-wagon prices of the major companies? 

Mr. Hartley. I did not say that. 

Mr. AviLDSEN. Excuse me ; I think you said there is no competition. 

Mr. Hartley. There is no competition between them, because it 
isn't maintained long enough — only a few days. 

Mr. AviLDSEN. The situation Mr. Hewett has described would indi- 
cate real competition. 

Mr. Hartley. No real competition, because the competitive prices 
were not maintained any length of time. In the case of Shell it was 
three-tenths of a cent, and it lasted about a week. 

Mr. AviLDSEN. If Standard Oil had a lower price than the other 
companies, the other companies had to come down to' their price. 
They could not maintain a difference for any length of time. 

Mr. Hartley. That is correct, and also at times they announce that 
they have competition upward, although I can't see how competition 
could ever be.upward. 

Mr. Snyder. Now, while we are on price leadership of the Standard 
Oil Co. of Indiana in this area, are they leaders in the types of con- 
tracts used between suppliers and dealers ? 

Mr. Hewett. Are they leaders? 

Mr. Snyder. Do they set the type of contract for the area, or are 
there competitive types of contracts in the area ? 

Mr. Hewett. I really don't know whether they are the leaders in 
that or not. 

Mr. Snyder. Do you know whether in the Kansas City area the 
Standard Oil Co. has supply contracts with lessees of their stations ? 

Mr. Hewett. "^ell, when they lease a station they agree, in their 
contract, to supply their products. 

Mr. Snyder. You mean the lease contains that provision ? 

Mr. Hewett. I don't know about that. That was in the old lease and 
agency agreement that I operated under. 

Mr. Snyder. But at the present time you are not conversant with 
the Standard Oil Co.'s leasing policy? 

Mr. Hewett. No. It is changed from time to time. 

Mr. Snyder. Proceed with your statement. 


Mr. Hartley. May I call attention to a fact that Mr. Hewett has 
overlooked here? Awhile ago, when he spoke of maintaining a com- 
fortable margin, he was referring to the station at 3971 Broadway. He 
did not tell the story of the destructive competition that he met at 
Fourteenth and,Broadway, which today, while I took lunch with Mr. 
Hewett and his wife, Mrs. Hewett confided to me that Woody would 
frequently have to give her $5 on Saturday — wasn't it ? — to last the 
family the whole week. That was all they could get out of the station. 
That was chiefly because immediately across the street from that 
Texaco station that Woody operated, and on which he lost money, a 
Sinclair station operated at 4 cents off, and that competition was 
positively destructive. 

Mr. Snyder. Mr. Hewett, probably I should ask a couple more 
questions on this credit-card situation. It isn't very clear to me. A 
customer with a Texaco credit card drives in your station. You sell 
him 5 gallons of gasoline. What operation do you go through to get 
reimbursed for the 5 gallons? 

Mr. Hewett. Record his sale upon the form furnished 

Mr. Snyder (interposing). By the Texas Co.? 

Mr. Hewett. By the Texas Co. ; get his signature to the amount of 
the purchase. He takes the original invoice, the original copy of the 
invoice. The other two I give to the driver in payment for supplies. 

Mr. Snyder. Do you know at what price the Texas Co. bills him for 
the gasoline he purchased ? 

Mr. Hewett. I have no way of knowing, except possibly for one 
thing. I don't have any way of knowing whether or not this exists. 
Our district happens to be desi^ated by the letter "E." Certain na- 
tional concerns, I notice, operating in our district and securing their 
credit cards through our district, might have a "C" in front of that. 
Now, whether that means "commercial" accounts, entitled to discount, 
I don't know. So far as I am concerned, \ write it up at my posted 

Mr. Snyder. And they credit you at the posted price? 

Mr. Hewett. They credit me with the posted price, or whatever I 
put on my invoice. 

Mr. Snyder. You don't know any holders of credit cards well enough 
to ask them what price they pay ? 

Mr. Hewett. Usually the type of customers that have those con- 
tracts don't know themselves. In the organizations they are working 
for or represent they are salesmen or auditors or traveling men rep- 
resenting maybe some firm in Chicago, and that "CE" is the only 
designation on there that is different from the individual credit card. 

I nave no way of knowing. So far as I am concerned, the sale is 
completed at my station, I get my posted price for it, and they allo-^ 
me exactly that. They make no distinction between, those two dif-_ 
ferent types, if there is a difference. ; 

Mr. Snyder. Proceed with your next point, Mr. Hewett. 

Mr, Hewett. The fourth type of retail outlet we have, and I 
wouldn't say retail outlet, the fourth type of outlet, is where the 
public, or a portion of the public gets gasoline, through business 
houses or manufacturers or industrial firms, and sometimes other- 
,wise, not for use in their own consumption and in their own ve- 


hides. Just a couple of illustrations of that. I have no quarrel with 
them, understand^ getting their gasoline where they can buy it 
cheaper. That is" only the human thing to do. But it does take some 
of our potential gallonage away from us and forces us to get a higher 
margin on the balance in order to maintain a scale where we can get 

Perhaps a couple of illustrations will explain that. The Kansas 
City Power & Light of Kansas City, Mo., has on its pay rolls approxi- 
mately 400 what we term "O" series automobiles. They are owned 
by private individuals. They are furnished gasoline and were, until 
about a year ago, furnished all the accessories and tires at the pur- 
chase price of the Kansas City Power & Light, which wa§ less than 
we can buy for. 

As a group of individuals there are the employees in the United 
States post-office garage, - where they have assembled together and 
purchased gasoline from the tank wagon, purchased motor oil in 
quantities, and" that portion of the, business we have no opportunity 
to get. 

In Kansas City there are 308 of those different firms and industries 
and groups buying direct from the tank wagon and servicing private, 
automobiles. It might be significant in that particular area, the in- 
formation was supplied to me by one of the managers of one of the 
large oil companies that through the retail outlets we only distributed 
46, percent of the total consumption in the area. The other 54 percent 
went through industrial firms or consumer users, a portion of it find- 
ing its way t > the private automobile by companies who purchase for 
their own use. 

Mr. AviLDSEN. Mr. Hewett, in that 54 percent are the Rochdale co- 
operatives included? 

Mr. Hartley. A very small percentage would be through, that. In 
Kansas Cityj Swift & Co., for instance, Duys in great gallonages from 
the major oil companies and sells directly to their employees. We 
complained about that to the Social Security Board, claiming that it 
was a form of compensation which should be recognized for social- 
security tax purposes. We obtained no results. Union Wire Rope 
and a lot of other companies, practically all the big companies of 
Kansas City, with the exception perhaps of Armour, follow that 
practice. I understand those fellows are well paid anyhow. 

Mr. AviLDSEN. Do they sell that gas at cost ? 

Mr. Hartley. No. They sell it sometimes at cost and sometimes 
at a little better than cost. Most of the time at cost. It is my under- 
standing that Swift & Co. sells it at cost, and that they actually lose 
some money by the sale. I said "my understanding," but I have had 
pretty good information on it. 


The Chairman. Do you have any suggestions to make to the com- 
mittee ? 

Mr. Hewett. There are certain suggestions that we have. We have 
just a suggestion — it may work; it may not; we don't know; we are 
not in a position where we can see every factor of the industry as it 
operates. We have access to none of that information except what 


we come in contact with in actual experience, so any suggestion we 
might make might be entirely wrong. Possibly, if the Internal Reve- 
nue Bureau would recognize employee status when any type of control 
or management is exercised by the supplier — I say it is just a sugges- 
tion. It might Tivork ; it might not ; we don't know. 

We do have another suggestion : Possibly minimium guaranties ac- 
companying a lease, so that the lessee and his employee would be 
assured of a living wage. 

The Chairman. The guaranty to be made by whom? 

Mr. Hewett. The guaranty to be made by the supplier. 

Mr. Snyder. That would't take care of the consumer, would it ? 

Mr. Hewitt. We don't believe that that should be done at the ex- 
pense of the consumer. I am sure I don't know how it would operate; 
I am not in the position to say; I am just a little fellow out there 
trying to actually live, and those are the conditions that I find ; and 
as I say, we can't see the whole picture. We know that, so far as we 
are concerned, as a whole we are suffering. 

Mr. O'CoNNELL. Isn't that suggestion that you just made some- 
thing in the nature of a resale price maintenance proposition? 

Mr. Hewett. No ; I don't consider it that. 

Mr. O'CoNNELL. Instead of imposing a minimum resale price 

Mr. Hewett (interposing). No; I didn't intend to infer that might 
include a minimum resale price. I intended to infer a minimum 
guaranty of income, sufficient that the lessee and his employee could 
live decently. Where the income would come from — that would be up 
to discussion. We don't believe that it should be done and affect our 
consumer. We are very much wrapped up in that, in this way, that 
as Mr. Hartley read a paragraph this morning, the consumer is our 
paymaster. I don't receive one penny from the Texas Co. in the way 
of salary, and whatever affects the consumer naturally affects me. 

We do believe if a lot of these inequities wpre adjusted — I am talking 
of tank-wagon prices — that if I were at liberty and felt that I could 
enjoy a business for a length of time, I wouldn't hesitate to make 
connections where I could buy cheaper. It is that fear of extermina- 
tion, when I have seen the price drop many years ago 6.6 overnight. 
There are none of us that would stand that over 30 days — competition 
of that type. 

That price was maintained for the obvious purpose and the express 
purpose of weeding out some of the marketers who were maintaining 
a lower retail price. 

¥ e think that there should be a redistribution of profits, including 
everybody interested in the whole business, including the consumer. 
It is an actual fact that we read these statements of income and 
profits made by the major oil companies when some of us who have 
children who are not really properly clothed. That is not only liter- 
ally true, it is actually true. And then we wonder why we work 
10, 12, and — I have put in consistently for 6 months at a time — 15 
hours a day. 

The Chairman. You don't offer any opinion as to the price which 
the retailer has to pay for his gas, as to whether that is too high? 

Mr. Hewett. I think it is too high. It seems, if I might draw this 
conclusion, that if I can buy gasoline a cent cheaper with all the 
privileges I have now from another major supplier through a jobber, 


that at least there should be some flexibility in there that we could 
lower the tank wagon price of the major suppliers. 

The Chairman. That is an opinion. Is it based on observation? 

Mr. Hewett. Just an opinion based on my own observation. 

Mr. Hartley, May I suggest, Mr. Chairman, we did have one case 
in the Greater Kansas City area, where for some period of time ^while 
gasoline was being sold to the major stations from their tank wagons 
at 10.9 cents, that an independent company, the Wilcox Co., was sup- 
plying a station within the same area, in the same locality, and the gas 
was being sold to the public at 8 centn per gallon, while the major 
oil company leased stations and merchandising stations were having 
to pay 10.9 cents for the same grade of gasoline which we had tested 
by the Ethyl Corporation Laboratories and it tested out to be equal to 
Standard Red Crown. In other words, the buying price of the major 
oil company leased stations was 10.9, tax included, while the selling 
price to the- public through tlie independent station was 8 cents, tax 
paid by the retailer or the public. 

The Chairman. Who bore the difference? 

Mr. Hartley. No one that I know of. I only know that it hap- 
pened. I assume there must have been some of that difference borne, 
by the refiner. 

The Chairman. But you have no knowledge about it. 

Mr. Hartley. I just know that between the two they got 5 cents, 
because there was 3 cents tax. 

The Chairman. Do you have any other suggestions as to remedy of 
the conditions described? 

Mr. Hevhett. No ; as individug,ls or as a group we would welcome 
the opportunity to learn more of the whole structure, then maybe we 
would be in a position to offer some assistance. This is the first time 
that we have had an opportunity to learn a great deal of .the struc- 
ture of this giant. 

The Chairman. Have you any more questions, Mr. Snyder? 

Mr. Snyder. No. 

The Chairman. Do the committee have any more questions? 

The committee will, I understand, hear Mr. Orvis. 

The committee then will stand in recess until 10 : 15 in the morning. 

(Whereupon, at 3: 40 p. m., a recess was taken until the following 
mommg, Friday, October 13, 1939, at 10: 15.) 



United States Senate, 
Temporary National Economic Committee, 

Washington^ D. C. 

The committee met at 2 : 30 p. m., pursuant to adjournment on 
Thursday, October 12, 1939, in the Caucus Room, Senate Office Build- 
ing, Senator Joseph C. O'Mahoney presiding. 

Present: Senator O'Mahoney (chairman), Representative "Williams, 
Messrs. Frank, Henderson, O'Connell, Lubin, and Brackett, 

Present also: Clarence Avildsen, representing the Department of 
Commerce; William T. Chantland, representing the Federal Trade 
Commission; Quinn Shaughnessy, representing the Securities and 
Exchange Commission; Representative Mapes (Michigan); W. B. 
Watson Snyder, Hugh Cox, F. E. Berquist, and Christopher Del 
Sesto, Special Assistants to th. Attorney General; Leo Finn and 
Roy C. Cook, Department of Jus ' -e. 

The Chairman. The committee will please come to order. - ..e wit- 
ness this afternoon is to be Mr. Orvis. Will yo.. come forward, 
please ? 

You were sworn the other day when you appeared, were you not, 
Mr. Orvis? 


N. J. — Resumed ^ 

Mr. Qrvis. Yes, sir. 

The Chairman. Then you may be seated. 

Wlien you were on the stand a few days ago you were discussing 
certain letters which had come to your attention, and the chairman 
asked you with respect to the identification of those letters and 
proof of their authenticity. Since that time the secretary of the 
committee has endeavored to check upon the letters. Mr. Cox or 
Mr. Brackett, have you anything to say about these letters ? Do you 
want to present them now, or shall we present them th^ ugh Mr. 

Mr. Cox. Mr. Orvis, as I understand, has prepared a short state- 
ment which he would like to make to the committee, which will 
cover some of the material contained ^n these letters, and I suggest 
that he make the statement, and as he refers to the letters, Mr. 
Brackett and I can furnish to the committee the authentication that 
Mr. Brackett has collected. 

The Chairman. Very well. 

1 Mr. Orvis' previous testimony, on October 5, 1939, appears in Hearings, Part 15. 
124491 — 40 — pt. 16, sec. 3 16 9067 


Mr. Orvis. Mr. Chairman, I have filed with this committee a writ- 
ten statement.^ This oral statement will present in summary form 
the more important and significant points which are covered in full in 
the written statement which I have filed with the committee. 


Mr. Orvis. At the outset, I would point out that I am primarily 
interested in transportation matters as they exist in the petroleum 
industry. It is only as to those matters that I feel that I am quali- 
fied to speak. For that reason I have attempted to confine my state- 
ment to matters which directly relate to transportation practices. 

Furthermore, in preparing my statement I have attempted to con- 
fine myself to facts which seem likely to be of particular interest 
and significance to this committee. I realize that this committee 
IS interested primarily in any or all practices which tend to create 
monopolistic power or to concentrate economic control in only a part 
of an industry and, in general, in practices which restrict the free 
play-©^ Individual enterprise. 

My experience has convinced me that certain transportation prac- 
tices work to the advantage of the large integrated major oil com- 
panies and to the disadvantage of their independent competitors. 
It is my purpose to point out to the committee certain specific prac- 
tices which I believe lead to this result. 

I shall begin by pointing out that in many cases the policies of the 
railway companies tend to favor the large integrated major oil com- 
panies at the expense of the smaller competitors. Let me make it 
clear tiiat I do not believe that this situation is entirely of the rail- 
ways' choosing. The major companies ship or control the shipment 
of an enormous volume of petroleum products, and I agree with what 
Interstate Commerce Commissioner Clyde B. Aitchison said in his 
formal opinion, filed last week, after a proceedings involving petro- 
leum transportation in the western part of the United States. I shall 
read just one sentence from page 734 of the Traffic AVorld of October 
7, 1939. [Reading :] 

Commissioner Aitctiison, who, with Examiner Disque, held the hearing, dis- 
sented, saying he regretted that he could not approve the adjustment here made 
of a situation in which major oil companies in California-^ 

Now the magazine quotes — 

"determined to block effective competition in the Inland Empire with Montana 
produced petroleum products, are using the common carriers by rail and highway 
and private water carriers as mere pawns in a deadly and determined commercial 

Mr. Cox. Will you tell us what the name of that case is ? 

Mr. Or\t[S. It is called I. and S. 4614, petroleum between Wash- 
ington, Oregon, Idaho, and Montana £ind cages joined with it. The 
latter are: I. and S. No. 4623, petroleum, Spoken to Washington; 
I. and S. No. M-737 petroleum and products, Umatilla, Oreg., to 
Washington ; No. MC (that is motor carrier) C-125, petroleum oyer 
motor carriers' routes in northwest ; No. 28048, Independent Refining 
Co. et-al V. Camas Prairie et al; and No. 28048 (sub No. 1), Stand- 
ard Oil Co. (Indiana) v. Same et al. 

1 Admitted, infra, p. 9125, as "Exhibit No. 1293," appendix, p. 9330. 


The Chairman. These numbers and symbols refer to cases before 
the Interstate Commerce Commission? 

Mr. Orvis. Yes, sir. 

Mr. Cox. Docket numbers. 

Mr. Orvis. Investigation and suspension dockets. 

It is my belief that the major oil companies do not hesitate to use 
the power which they thus possess to persuade the railways to adopt 
policies which favor the major companies. I shall give you some 
specific instances which I believe support this opinion. 

For example, Jet us consider the situation which existed in 1936. 
On behalf of a number of independent refiners operating in Arkansas, 
certain railways proposed to establish a new rate from the Arkansas 
field to Memphis, Tenn., and Greenville, Miss. These Arkansas re- 
finers were of the belief that a rate reduction was necessary if they 
were to be able to compete in that field with the majors. They sug- 
gested to the railroads that if they did not get the rates tbey would 
construct a pipe line for part of the distance and carry their products 
by water for the remainder of the distance. 

I have an authenticated copy of a letter dated November 12, 1936, 
addressed to the Chicago, Rock Island & Pacific Railroad, and the 
Missouri Pacific Lines, by the Mid-Continent Petroleum Corporation, 
objecting to this rate reduction and containing these significant state- 

Mr. Cox. Before Mr. Orvis reads that letter I perhaps should say 
that Mr. Brackett has received a letter dated October 11, 1939, on the 
letterhead of the Mid-Continent Petroleum Corporation, signed by 
J. C. Denton, vice president, which authenticates the letter which Mr. 
Orvis is about to read, except that the authentication shows that the 
letter which Mr. Orvis is about to read was dated December 12, 1936, 
instead of November 12, 1936. The text of the letter, however, seems 
.to be the same. 

Is it the committee's pleasure to put these authentications in the 
record ? 

The Chairman. I think it would be well to do that. 

Mr. Cox. Then at this point, perhaps, I should offer that. 

The Chairman. The letter may be received and inserted in the 
record unless there is objection. There being no objection, it will be 
so ordered. 

(The letters of authentication referred to were marked "Exhibit 
No. 1268," and are included in the appendix on p. 9311.) 

The Chairman. Proceed, Mr. Orvis. 

Mr. Orvis. One paragraph of this letter starts [reading from 
"Exhibit No. 1268"] : 

In our letter of November 5, addressed jointly to you gentlemen along with 
freight traffic officials of seven other Southwestern lines and Chairman Cleve- 
land, we believe we made our position with respect to the proposed rates 
perfectly clear. 

And it finishes — 

In cojasideration of all of these facts, please be advised that if your lines now 
by definite notice establish the rates sought by these Arkansas refiners and 
thereby discard and disregard the interests and welfare of other refiners in the 
Mid-Continent field such as this company, we can then only v( ~w your action as 
unfriendly to us and will naturally be compelled to bear it in mmd in the future. 

Copies to seven traffic managers of major oil companies and to the 
traffic manager of the Great Lakes Pipe Line Co. 


Mr. Cox. Do you know whether that rate reduction was in fact 
ever made ? 

Mr. Orvis. It was not. 

The Chairman. Was this request for a rate prosecuted before the 
Interstate Commerce Commission or abandoned? 

Mr. Orvis. No ; it was only before rate committees. 

The Chairman. It was where? 

Mr. Orvis. It was before — rather freight committees. 

The Chairman. Freight committees of the railroads ? 

Mr. Orvis. Yes. 

The Chairman. And it was with regard to what the freight 
committees Avere doing that this letter was written ? 

Mr. Orvis. I can be a little more explicit, Mr. Chairman. May I 
read the first paragraph, just one paragi^aph ? [Reading from "Exhibit 
No. 1268" :] 

With further reference to Southwestern . Freight Bureau Proposal 9648 covered 
by Mr. Gutsch's file B. 112188, Mr. Bogan's file H-11488-41— 

And those are the gentlemen to whom the letter is addressed — 

and which proposal failed of approval before the General TraflBc Committee as 
well as the Executive Committee of the Southwestern Lines, we now understand 
that the Missouri Pacific and Rock Island Lines, proponents of this proposal, are 
giving serious consideration to the matter of establishing the rate sought to 
Memphis and, if the concurrence of the Illinois Central System can be secured, 
also establish the proposed rate to Greenville, Miss. 

It was therefore a matter which had had hearing and declination 
before the freight traffic committee, and the railroads were of a mind 
to go further with it. 

The Chairman. You interpret the letter as a protest against fur- 
ther consideration of a rate reduction, and then you state to us that 
so far as you know, after this protest was filed no reduction was 

INIr. Orvis. Not as far as I know ; yes, sir. 

PROPOSED transportation AGREEMENT 

Mr. Ojivis. Now, let us pass on to another example which is even 

more-Interesting. The discussion of this situation may well begin 

^ith the introduction into the record of a memorandum written by 

the president of the Association of American Railroads, and dated 

January 17, 1935, addressed to executives of 13 major oil companies. 

Mr. Cox. Mr. Chairman, that memorandum has been authenticated 
by Mr. J. J. Pelley in a letter addressed to Mr. Brackett, dated 
October 9, 1939, and signed by Mr. Pelley, with this exception: He 
says that the memorandum is correct except that on page 4, the first 
sentence of the third paragraph, the word "operative" which appears 
in the Orvis memorandum, should in fact be "effective." I offer this. 

The Chairman. This is the memorandum which Mr. Orvis was 
presenting at the time the committee requested him to stand aside? 

Mr. Cox. That is correct, and that is the letter of authentication. 

The Chairman. This is a letter from Mr. Pelley to Mr. James R. 
Brackett, executive secretary of the committee, authenticating the 
letter offered by Mr. Orvis? 

Mr. Cox. That is right. 


The Chairman. Without objection this will be admitted to the 

(The memorandum and letter of authentication referred to were 
marked "Exhibit No. 1269" and are included in the appendix on 
p. 9312.) 

Mr. Orvis. The memorandum reads as follows [reading from 
Exhibit No. 1269] : 

Re : Memorandum of discussion regarding transportation of petroleum products 
in the Southeast: 

Based upon discussion with Mr. Cleveland, it is my understanding that 
in view of certain conditions to be later referred to herein, you have stated 
that in the Southeast you will discontinue trucking from your water 
terminals or refineries to the interior for distances in excess of forty 
to fifty miles, which is the approximate limit of the customary filling station 
distribution, whether service by truck for greater distances is being performed 
by outside agencies or by trucks of your company, and that you will simul- 
taneously discontinue delivering these products to dealers' or buyers' trucks 
at your water terminals or refineries. 

Railroads in Southeastern territory, in order to make this arrangement an 
effective one and to stabilize the distribution of these products, will- use their 
best efforts to bring about a readjustment of inter-territorial rates on these 
products into Southeastern territory on the same rate level as fixed by the 
■Interstate Commerce Commission within that territory, it being recognized that 
in order to make this change in freight rates it will be necessary to obtain 
relief from outstanding orders of the Interstate Commerce Commission. 

Railroads in Southeastern territory will reform as rapidly as seems advisable, 
existing leases covering railroad property used for filling station purposes. 
Ttiey will discourage future leases of this character, and will in no case make 
such leases on terms more favorable to lessees than under the reformation 

It is suggested that above arrangements become operative^ May 1, 1935, 
unless some other date 

The Chairman (interposing). Is that the sentence in which Mr. 
Pelley suggested the change? 

Mr. Orvis. Yes, sir. 

The Chairman. So it should read "that above arrangements be- 
come effective." 

Mr. Cox. That is correct. 

Mr. Orvis (reading) : 

effective May 1, 1935, unless some other date as early as possible will better 
suit your necessities. It is understood that the above arrangements will con- 
tinue in effect until your company or the railroads involved decide that they 
are not working satisfactorily, in which event sixty days' advance notice of the 
termination of these arrangement$^ will be given, and upon receipt of such 
notice from any company I will promptly notify the other interests involved. 

The Chairman. Mr. Pelley states in the letter of authentication 
that this arrangement was never made effective. 

Mr. Orvis. Yes, sir. 

I call your attention to the fact that the agreement set forth in 
this memorandum contains several different aspects. One, the major 
oil companies operating in the Southeast were to discontinue truck- 
ing from their water terminals or refineries to the interior, except 
for short hauls of from 40 to 50 miles. Trucking was to be discon- 
tinued whether the trucking was done by outside motor carriers or 
by the major companies" own trucks. 

Second, these major oil companies were to discontinue delivering 
their products to dealers' or buyers' trucks at water terminals or 

1 "EflEective" in the original document. " 


refineries. This meant, of course, that dealers or buyers would be 
compelled to use the rails if they wished to purchase from these 
major oil companies. 

Third, the railroads, on their part, pledged their best efforts to 
bring about a readjustment of rail rates from the southwestern re- 
finery area into the southeastern territory to the somewhat higher 
rate level fixed by the Interstate Commerce Commission for rates 
within the southeastern territory. 

The interterritorial rates into the southeastern territory which the 
railroads agreed to use their best efforts to raise were the rates which 
would have to be paid by independent refiners of the Southwest if 
they wished to ship into that territory. Since the major companies 
were shipping entirely by marine tankers from the Gulf coast, 
there was no necessity for them to use rail transportation into the 
territory. Raising the rail rates which it was necessary for the in- 
dependents of the southwestern territory to pay would create an 
additional barrier f oy the independents to overcome if 'they wished to 
compete in the southeastern territory. 

Fourth, the railroads also agreed to reform as rapidly as seemed 
advisable their existing leases covering railroad properties used for 
filling station purposes. They were to discourage luture leases of this 
character and were in no case to make such leases on terms more 
favorable than those which apparently had been agreed upon by 
the railroads and the major oil companies. And. of course, in con- 
nection with all this, there would be a new scale oi motor competitive 
rates published for the rail movements. 

I have in my possession authenticated correspondence passing be- 
tween the railroads and the major oil companies showing that this 
arrangement had been under negotiation prior to January 17, 1935. 
The arrangement had been under consideration at least since the pre- 
vious November, and in that period and also subsequent to January 
1935 the various parts and details of the arrangement were considered 
at meetings held by the railroads and the major oil companies, and 
by correspondence which was exchanged between them. In the belief 
that the background and the subsequent arrangements with respect 
to this agreement are relevant, and will be interesting to this com- 
mittee, I offer this authenticated correspondence. 

Mr. Brackett. There are three letters from the Texas Co., I be- 
lieve, that Mr. Orvis has. Mr. Ray, counsel for the Texas Co., per- 
sonally authenticated those letters to^ me. 

The Chairman. Who is Mr. Ray?' 

Mr. Brackett. Mr. Ray is counsel for the Texas Co. 

The Chairman. What is his full name? 

Mr. Brackett. George W. Ray. 

The Chairman. Is he in Washington? 

Mr. Brackett. He is in the room now. 

The Chairman. And he personally authenticated these letters to 

Mr. Brackett. Personally. 

Mr. Orvis. This letter of November 16 is from the Texas Co. to 
Mr. J. E. Tilford, chairman, Southern Freight Association. Atlanta, 
with copies to eight companies, and it says that he will be at the 


meeting of which he has had notice, to be held on November 28. 'The 
next is a letter dated November 30, 1934, from the Texas Co. to the 
Southern Railway System, Seaboard Air Line Railway, Atlantic 
Coast Line Railroad, and Norfolk Southern Railroad. The first para- 
graph contains what the letter says [reading from exhibit No. 1270] : 

Following joint conference with you gentlemen the nlorning of November 28, 
1934, traffic representatives of Southern petroleum shippers met in conference 
that afternoon in an endeavor to agree on a scale of rates whicji it was felt 
would enable the Southern lines to meet truck competition. ^ -•- 

And this is the scale of rates prepared for that purpose. Copies 
to nine major companies. 

The Chairman. Is that similarly authenticated? 

Mr. Brackett. Yes, sir. 

The Chairman, These letters and memoranda all have to do with 
a conference of representatives of the major oil companies iwith re- 
spect to the subject matter of the memorandum addressed to the pe- 
troleum companies by Mr. Pelley which has been authenticated by 
Mr. Pelley and admitted to the record ? 

Mr. Orvis. Yes. 

(The letters referred to were marked "Exhibit No. 1270" and are 
included in the appendix on p. 9313.) 

Mr. Orvis. Next is a letter dated December 12, 1934, from the 
Standard Oil Co. of Kentucky, Louisville, Ky., oflBce. 

Mr. Cox. The letter which Mr. Orvis now is referring to has been 
authenticated in a letter addressed to *Mr. Brackett, dated October 12, 
written on the letterhead of the Standard Oil Co. of Kentucky and 
signed by W. E. Smith, president. This is the letter of authenti- 

The Chairman. The letters may be admitted. 

(The letters referred to were marked "Exhibits Nos. 1272 and 
1271," respectively, and are included in the appendix on p. 9315.) 

Mr. Orvis. The letter is addressed to the Seaboard Air Line Rail- 
way, Southern Railway, Atlantic Coast Line Railroad and Norfolk 
Southern Railroad and starts-^ 

With reference to letter to you gentlemen under date of November 30th 
from The Texas Company — 

and contains this which I think should be noticed [reauiug from 
"Exhibit No. 1272"] : 

It might not be amiss to state at this time that the various marketing divi- 
sions of the petroleum industry at large are giving serious consideration to the 
agitation for a new price structure similar to that in the north-central portion 
of the country to the extent of reflecting the element of rail transiwrtation costs 
in the posted prices for gasoline and refined oils at the many jobbing and bulk 
distributing centers in the territories served by your rails. This new develop- 
ment in the marketing phase v/f the petroleum industry quite naturally contem- 
plates the observance of the present level of petroleum rates as the minimum 
cost of rail transportation, and the defense of such minimum level in the rep- 
resentation that there is much water and truck transportation at the present 
time at costs to the industry so much less than the possible transportation costs 
via rail under any distance scale that may be devised as to justify the predic- 
tion that perhaps in the early part of next year, if not sooner, the petroleum 
industry may deem it advisable to resist unnecessary reductions in rail rates' 
that would be most unattractive at any figure. 


Mr. Cox. What significance do you attach to that passage? 

Mr. Orvis. Speaking as a qualified transportation man and only 
that, I can only say that if the intent was, or at least the intent was 
to speak of an- arrangement similar to that in this north-central part 
of the coTmtry where the prices to customers included the freight 
item set fortli. This has to do more with marketing. I don't profess 
to know all there is to know about that. 

The Chairman. This was a protest against a reduction. 

Mt. Orvis. No, sir. 

Isii: Cox Was this the same discussion of the Pelley memorandum? 

Mr. Orvis. This was written December 12 and the memorandum 
was on January 17. I just want to finish one sentence. 

The Chairman. December 12, what year? 

Mr. Orvis. 1934. 

Mr. Cox. Does it relate to the same arrangement w^hich was dis- 
cussed with Mr. Pelley? 

Mr. Orvis. Yes. The heading is "Southeastern Petroleum Rates," 
and the letter ends [reading further from "Exhibit No. 1272"] : 

I am therefore simply calling your attention to a recent development whiv. 
is attracting much attention from the marketing divisi(VL of our respective coir 
panies in such a manner as to warrant and justify! the prediction that unit ; 
certain of the Southern rail lines act promptly to cure the situation with whici 
they are confronted, all of the traffic representatives of the oil companies ma 
be compelled to present a solid front and united effort to resist freight rat 
reductions of no particular benefit to the carriers when made, but likely tc 
become a disturbing element in the nevv ' isis for a price structure now in con 
templation for Southern territory. 

The Chairman. Then that sounds like a protest against a reduction, 
or a contemplated protest against a reduction of freight rates, 

Mr. Orvis. No, sir. [Reading from the same exhibit:] 
It might not be amiss to state at this time — 

he started the paragraph. As a matter of fact, the next letter indi- 
cates that they were not entirely 

The Chairman (interposing). May I see the letter, please? This 
copy has been authenticated by the traffic manager, whose signature 
is here, traffic manager of the Standard Oil Co. of Kentucky, but I 
am unable to read the signature. Can you state Avhat that is, Mr. 
Brackett? Is it A. M. Step'L-iens? It apparently is: S-t-e-p-h-e-n-s ; 
A. M. Stephens is the name on the letterhead. 

The sentence which vou were just reading is as follows [Reading 
from "Exhibit No. 1272"] : 

It might not be amiss to state at t.iis time that the various marketing divi- 
sions of the petroleum industry at large are giving serious consideration to agi- 
tation for a new price structure similar to that in the north-central portion of 
the country to the extent of reflecting the element of rail transportation costs in 
the posted prices for gasoline and refined oils at the many jobbing and bulk 
distributing centers in the territories served by your rails. 

I take it that this is a remark or an observation by the author of 
this inemorandum to the effect that an agitation has been in progress 
for a nenv price structure of petroleum products? 

Mr. Orvis. Mr. Chairman, I don't know what that means at all. 

The Chairman. Then the concluding sentence which you read, and 
which I now read : 

I am therefore simply calling your attention to a recent development which 
is attracting much attention from the marketing division of our respective com- 


panies in such a manner as to warrant and justify the prediction that unless 
certain of the Southern rail lines act promptly to cure the situation with which 
they are confronted, all of the traffic representatives of the oil companies may 
be compelled to present a solid front and united effort to resist freight rate 
reductions of no particular benefit to the carriers when made 

Now I asked you if that was not a statement that the author of 
this memorandum was opposing freight reductions, and I understood 
you to say "no." 

Mr. Orvis. I still say so, sir. It is predicted that they all would. 

The Chairman. That they all would what ? 

Mr. Orvis. Oppose reductions which they didn't 

The Chairman (interposing). Exactly. "Resist freight reduc- 
tions" ; is that what you understand it to be ? 

Mr. Orvis. Yes; but I think you will find in that letter that he 
himself says as far as these are concerned this company is in accord. 

The Chairman. What is the meaning of this memorandum as you 
read it? I am just trying to get an interpretation of what it means. 

Mr. Orvis. It is a difference of opinion on the part of one com- 
pany, which is referred to in the next letter where, his opinion is ques- 
tioned and the railroads are told by the writer of the next letter 
that he does not represent 

The Chairman (interposing) . Let's forget the next letter. I want 
to know what this letter means in your mind. What does this letter 

Mr. Orvis. A market-price structure was in his mind as something 
of the future. That is all it means to me. 

The Chairman. Well, what sort of a market structure ? Of course, 
there was to be a market structure. 

Mr. Orvis. A new one, similar to that which is in the North Cen- 
tral portion of the country. 

The Chairman. What did freight have to do with it? 

Mr. Orvis. It is better told in those words there [reading from 
"Exhibit No. 1272"] : 

'io the extent of reflecting the element of rail transportation costs in the 
posted prices for gasoline and refined oils at the many jobbing and bulk dis- 
tributing centers in the territory served by your rails. 

The Chairman. All right, was he protesting against an increase 
or a prospective increase or was he urging a reduction or objecting 
to a reduction of freight rates? 

Mr. Orvis. He says, Mr. Chairman, in another paragraph [reading 
from the same exhibit] : 

We are entirely in accord with the representation for the necessity of the rail 
carriers establishing such a level of rail rates where the conditions justify that 
equalization for account of the rail carriers. 

Mr. Frank. If you go on with the next letter will that help you? 

Mr. Orvis. I think it will. 

Mr. Frank. I suggest the witness put in the next letter and then 
we can go back. 

The Chairman. Very well. 

Mr. Orvis. The letter is December 31, 1934. 

Mr. Brackett. This is another of the letters which was authen- 
ticated by Mr. Ray. 

The Chairman. Of the Texas Co.? 


Mr. Brackett. Yes. 

The Chairman. Very well. 

(The letter referred to was marked "Exhibit No. 1284" and is 
included in the appendix on p. 9326.) 

Mr. Orvis. The letter from the Texas Co. is addressed to the South- 
ern Railway, Seaboard Air Line, Atlantic Coast Line, Norfolk South- 
ern Railroad [reading from "Exhibit No. 1284"] : 

It appears that Mr. Stephens by his letter of December 12 is attempting to 
express the views of the Southern petroleum shippers generally, which is not 
correct so far as the Texas Co. is concerned, and Mr. Stephens is not authorized 
to represent this company in the matter. 

There is a difference of opinion between the traffic men. 

The Chairman. Well, what are you seeking to prove by these 

Mr. Orvis. These all had to do with a situation in November and 
December 1934, and January and succeeding months as to the reduc- 
tion of the rates by the railroads in southeastern territory. 

Mr. Frank. That reduction was suggested by whom? 

Mr. Orvis. By the oil companies. 

Mr. Frank. Major companies? 

Mr. Orvis. Yes, sir. 

Mr. Frank. They sought a rail rate reduction? 

Mr. Orvis. Yes. 

Mr. Cox. Mr. Orvis, let's take this letter of December 31, 1934, 
which the chairman was just asking about,^ and you look at that 
letter. Isn't it a fair construction of that letter to say that the writer 
in the first place is in favor of the rate reduction over short hauls or 
comparatively short hauls in the southeastern territory which had ' 
been suggested or was under consideration as shown in the Pelley 
memorandum ? Is that correct ? 

Mr. Orvis. Yes. 

Mr. Cox. But he objects to the reduction of rates on longer hauls 
where the deliveries of products might be made with advantage by 
the major companies from water terminals. Is that not right? 

INIr. Orvis. No. The objection as I read it was in favor of his 
own company, that is all. He was putting in a word, as he should, 
for his own company and its terminals. 

Mr. Cox. Very well, taking that correction, look at the last page 
of the letter, the bottom of page 2 and the top of page 3, start on 
the bottom of page 2 and look at the top of page 3. Tell us what 
that means there. 

Mr. Orvis. He was speaking about his own terminals and saying 
this [reading further from "Exhibit No. 1272"] : 

However, we do not recommend nor do we want s;ich a basis for rates that 
projects itself into some more distant teri'itory that can be reached more 
economically from another water terminal in a more distant area as would be 
the case of our" distribution out of a terminal at Panama City to such points 
as Tallahassee, Fla. ; River Junction, Fla. ; Columbus, Ga. ; and Quincy, Fla. 

Mr. Cox. All right, now in the third place, isn't it fair to say 
that he also makes a point in that letter that unless the railroads can 
correct the situation with respect to the rates prevailing on short 
hauls in the southeastern territory, that the oil companies may adopt 
some other form of transportation and resist those rail reductions if 
" they are proposed later. 

1 "Exhibit No. 1284," appendix, p. 9326 


Mr. Orvis. Yes. 

Mr. Frank. You made the statement that this discussion and these 
letters throw some light on monopolistic practices of the major oil 
companies. Now, will you in that context explain what bearing these 
letters have on your statement that there were monopolistic practices 
or attempts to create them ? 

Mr. Orvis. In my written statement ^ I said the continual exchange 
of policy and plans that takes place combines the full shipping 
strength of a number of large companies and uses it as one. These 
latter are all addressed to each other. 

Mr. Frank. And what were they endeavoring to do that you 
consider monopolistic and injurious to the smaller competitors ? 

Mr. Orvis. Well, the memorandum read first has those character- 
istics, as I see them. 

Mr. Frank. And what is the bearing of these letters on that ? 

Mr. Orvis. This was all part of that preparation. 

Mr. Frank. To do what? 

Mr. Orvis. To do the things indicated in this letter. 

Mr. Frank. Which are what, in your opinion? 

Mr. Orvis. One was the reformation of leases, one was to use best 
efforts to fix the rate situation to better advantage for the shippers 
by tanker from the Gulf coast. Another thing was that they would 
discontinue using trucks of their own or of other people over 50 
miles, and they would not sell except on the condition that pur- 
chasers bought their commodities and took delivery by rail. That 
was in the memorandum. 

Mr. Henderson. But whom would this hurt and whom would it 

Mr. Orvis. The independent refiners in the South — 

Mr. Frank (interposing). Would be hurt? 

Mr. Orvis. Very much so. 

Mr. Henderson. And they were not participants in these negotia- 
tions ? 

Mr. Orvis. They were not. 

Mr. Frank. Why would it hurt them? 

Mr. Orvis. Because it would raise the rate wall, the only rate wall 
that they could use, which was by rail from the Southwest to the 
Southeast. They did not have tankers. 

The Chairman. Now, as I read the original memorandum and this 
recent memorandum of the traffic manager of the Standard Oil of 
Kentucky, the one particular point seems to become clear, namely 
that the railroad memorandum suggested to the companies that if 
these companies should abandon trucking their products from the 
water terminals over distances not to exceed 50 miles, the railroads, 
in consideration of that abandonment of the use of trucks, would re- 
duce the rates for freight transportation. 

Mr. Orvis. That's it, plus all these other phases. 

The Chairman. I am leaving those out for the minute, because I 
want to get one idea at a time. 

Then Mr.- Stephens' memorandum was to the effect that this 
arrangement should not be made to cover distances in excess of 
150 miles. 

1 "Exhibit No. 1293," appendix, p. 9330. 


Mr. Oevis. That's right. 

The Chairman. In other words, he wanted the contract to be bound 
at the lowest end by 50 miles and at the highest end by 150 miles. 

(The witness nodded in the affirmative.) 

The Chairman. And that reduction of freight rates over long 
hauls in excess of 150 miles might be injurious to his company, be- 
cause his company apparently had the facilities with which to bring 
about transportation and secure deliveries at rates which would be 
injuriously affected so far as their company was concerned by the 
lower rates of the railroads? 

Mr. Orvis. I think I could make it clearer than that. 

The Chairman. I have- no doubt. 

Mr. Orvis. You have two refineries or two terminals within 300 
miles of each other. A schedule of rates going to 250 miles, of low 
level, would enable one refiner to go over closer to the other refinery. 
He wanted the limit to be 150 miles around each refinery. He thought 
that was better, that is all. They didn't agree with him. 

The Chairman. Very well. Now this, of course, was all a dis- 
cussion. Was it ever carried into effect? 

Mr. Orvis. Yes, sir. 

The Chairman. All right. That is what we want to know. 

Mr. Orvis. The precise extent to which this agreement became effec- 
tive is a matter as to which I cannot testify categorically. Neverthe- 
less I have in my possession certain facts which are extremely relevant 
to that question. First, I have reason to believe that in accordance 
with the Pelley memorandum of Januarry 17, 1935, the majors in many 
instances discontinued delivering their products to dealers' or buyers' 
trucks at water terminals and refineries. For example, in 1936 a ' 
man named S. T. Gresham, who operated the Standard Transporta- 
tion Co. at Raleigh, N. C, told me that he had had to discontinue 
trucking operations in North Carolina, where he had been trucking 
for the past several years. He told me that he had come to New 
York to see .the Standard Oil Co. of New Jersey, whose products he 
had been transporting formerly. He said that it was no longer pos- 
sible in the Carolina territory in which he operated for purchasers 
of petroleum products from the major companies to arrange to have 
those products hauled by truck from refineries or terminals. 

He told me in the presence of a witness that his purpose in coming 
to New York was to see about moving his fleet of trucks to Virginia, 
to serve the same company there in the transportation of its products. 
He said that he had been told that very morning by the traffic depart- 
ment of the Standard Oil Co. of New Jersey not to put his plan into 
operation, because in a short time there would be no trucking in 
Virginia either for him. 

. Furthermore, I was informed in August 1938 by Mr. H. H. Hardin, 
of Forsyth, Ga., an independent oil distributor in that territory, that 
major companies do not, as a general practice, allow the independents 
to haul from their terminals. ■ This statement was made in a letter 
dated August 18, 1938, which I have before me. The letter is ad- 
dressed to me. 

And then there were, as reported in the National Petroleum News 
of May 6, 1936, the several suits and legal proceedings in North Caro- 
lina, one of them only now coming on for hearing on appeal this 


month or next month, and I quote this one paragraph from the Na- 
tional Petroleum News of May 6, 1936 [reading] : 

Meanwhile a treble damage suit under the State antitrust law involving about 
$50,000 has been slapped on the railroads by Quality Oil Transport Co., a sub- 
sidiary of Quality Oil Co. of Winston-Salem, which is one of the largest inde- 
pendent oil jobbers in the South. This suit, based on the rail rates put into 
effect August 15, 1935, charges that the rate reduction was the result of a 
conspiracy among the railroads to eliminate truck competition. 

The proof of the lawyers' charge that the railroads have agreed by concerted 
action to reduce their rates to meet truck competition is contained in evidence 
which purports to be a copy of a letter signed by an oflScial of a certain major 
oil company. It is addressed to officials of foui^ railroads operating in this 
section, and there is an indication that carbon copies were sent to officials of 
nine other major oil companies operating in the South. This document refers 
to a conference in New York on November 28, 1934, at which traffic representa- 
tives of Southern petroleum shippers met with railroad officials in an endeavor 
to agree upon a scale of rates which it was felt would enable the Southern 
lines to meet truck competition. 

The Chairman. What was the date of that? 

Mr. Orvis. May 6, 1936. 

The Chairman. What happened at that suit? 

Mr. Orvis. I learned only last night, Mr. Chairman, that it is 
coming on for appeal, I think, next week or next month. 

The Chairman. Was it tried? 

Mr. Orvis. Yes. 

The Chairman. What was the verdict or the decision? 

Mr. Orvis. Without going through all my papers, there are so 
many different ones down there, I don't remember. 

The Chairman. You don't know who the appellant is, then? 

Mr. Orvis. The transport company. They lost all the way along. 

The Chairman. That is, the plantiff lost? 

Mr. Orvis. Yes. 
, The Chairman. So that the court of original jurisdiction decided 
against- the plaintiff? 

Mr. Orvis. Yes. 

Mr. Frank. Mr. Orvis, I wonder if I can understand you. I am 
having a little difficulty. In your prepared statement on page 8 
you make the following statement, and I want to see if this is the 
general line of suggestion that you are urging here. You say that 
[reading from "Exhibit No. 1293"] : 

The Minnesota jobber and dealer and consumer, for instance, are made 
to pay the all-rail freight from the Oklahoma, Kansas, or Texas refinery, even 
when the gasoline comes seven-eighths of the way through a pipe line and 
only the final one-eighth in a railroad tank car. Settlement for the gasoline 
is ingeniously contrived and concertedly adhered to on the basis of the freight 
charge that would have been "collected if the movement had been entirely in 
a tank car, and here again, strangely, we find the railroad carriers a pliant 
tool of monopoly, for with the aid of these carriers, the pipe-line profits are 
still further increased. The lower the rail charge can be hammered down 
for that final one-eighth of the distance and the higher the all-rail rate 
can be kept up for the entire distance, the greater the profits naturally of the 
pipe line carrying the gasoline seven-eighths of the distance, and since the 
common carrier pipe line is owned by the majors, that much more do the- 
pipe-line profits tend toward dominance by the monopoly. 

Is that the general picture you are tendinfr to indicate" through 
these letters ? 


Mr, Orvis. No ; that is only the picture in the West. 

Mr. Frank. Are you indicating that they are now trying to move 
that same device into this other territory? 

Mr. Orvis. These general characteristics prevail throughout the 
country, but that is about pipe-line stuff. 

Mr. Henderson. May' I make an essay at it ? In this letter of 
December 12 of Mr. Stephens he says [reading from "Exhibit No. 

It might not be amiss to state at this time that the various marketing divi- 
sions of the petroleum industry at large are giving serious consideration to the 
agitation for a new price structure similar to that in the North Central portion 
of the country, to the extent of reflecting the element of rail transportation 
costs in the posted prices for gasoline and refined oils at the many jobbing and 
bulk distribution centers in the territory served by your rails. 

Does that not mean they are giving serious consideration to this 
same phantom freight referred to here? 

Mr. Orvis. That is just what it is. He speaks there of the north 
central section, understanding in all fairness that he did not speak 
for the others. 

Mr. Henderson. He has hinted that he will ado\»t in effect a basing 
point price, and regardless of the method of transportation, the all-' 
rail freight will be included in the posted price. 

(The witness nodded in the affirmative.) 

Representative Williams. The primary purpose of this that you 
are giving now is to show that there is a conspiracy, so-called, be- 
tween the railroads and the major oil companies to eliminate com- 
petition in transportation between the railroads and the truck lines; 
is that it? • . . 

Mr. Orvis. That's it; yes, speaking now about only the southern 

Representative Williams. That's what I mean, with reference to 
the exhibits and the Pelley letter that has been introduced here. 

Mr. Orvis. The second point: I have no way of knowing on any 
large scale to what extent the railways in the southeastern territory 
reformed their existing leases and discouraged or discontinued the 
making of future leases for filling-station purposes. I do know, how- 
ever, that in some localities independent oil distributors have found 
it impossible to lease railway property at all for filling-station or 
storage purposes. 

I read from a letter received by me from a small distributor in 
Florida. His words are [reading] : 

We tried for several months to secure a location on the railroad sidetrack, 
but was refused by the local manager for the Seaboard Air Line, a man named 
Mills, who is dead now, who told me that if he allowed me to put up our tanks 
on the railroad right-of-way he would lose his Job. I then purchased the prop- 
erty we now own. 

Finally, as to increasing the freight barrier against southwestern 
refiners desirous of shipping into the Southeast, I find that on a num- 
ber of occasions since that time applications for interterritorial rate 
reductions were quashed by mutual or concerted effort between thp 
major oil companies and the rail carriers, even after the rail carriefL. 
had placated the southwestern refiners by proposing to establish lower 
rates into the Southeast f o^ them. 


For one example, letter dated May 4, 1937, Standard Oil of 

Mr. Cox. That letter has been authenticated. 

The Chairman. This is a letter of May 4,1937, from^the traffic 
manager, Standard Gil of Kentucky, to Mr. J. C. Beck, of the Gulf 
Oil Corporation. - -That is the one you are referring to ? 

Mr. Orvjs. Yes, sir. . ^ 

The Chairman. That has been authenticated" by Mr. Stephens. 
The letter and the authentication may be admitted to the record. 

(The letter referred to was marked "Exhibit No. 1273" and is in- 
cluded in the appendix on p. 9317.) 

The Chairman. Proceed. 

Mr. Orvis. The letter starts [reading from "Exhibit No. 1273"] : 

Recalling conversation some time ago in regard to the Southern Freight Asso- 
ciation Emergency Proposal No. 2363, indicating proposed rate of 3Q^i cents from 
New Orleans-Baton Rouge Group to Atlanta, Ga. 

I have discussed this matter with our L&N Railroad friends. * * * You 
will understand, therefore, that for the present there need be no concern over 
any immediate action by the Louisville & Nashville Railroad or others for the 
approval of the basis sought. 

That letter has copies to nine companies. 

The Chairman. Now, is this dealing with the same subject as the 
memorandum of Mr. Pelley? 

Mr. Orvis. That has to do with the interterritorial rates from 
Southwest to Southeast. 

The Chairman. Now then, to go back for a moment, you quoted 
from some journal a report of the filing of a triple damage suit by 
a trucking company, against the railroad, based upon the allegation 
that the railroad had lowered the freight rate adversely to the inter- 
ests of the trucking company, as a result of conspiracy with the 
shippers. Is that correct ? 

Mr. OpA-is, That is correct; yes, sir. 

The Chairman. Did you make a personal investigation to fin(i out 
whether or not, as a matter of fact, the rate had been reduced? 

Mr. Orvis. Oh, these rates were reduced. 

The Chairman. Then there was a reduction of the freight rAte? 

Mr. Orvis. Yes, sir. 

The Chairman. In this territory, following this memorandum? 

Mr. Orvis. Yes; on August 15, 1935. ' 

The Chairman: Do you have a copy of that order, that tariff? 

Mr. Orvis. No. It is known as the Tilford rate scale, because of 
that gentleman Tilford in the Southern Kate Association who ar- 
ranged the scale. It is the .scale also set forth in the letter of April 
26, 1935, that was here last week. 

The Chairman. Have you presented that letter? 

Mr. Orvis. Is that to go in ? The suggestion was made that I' pro- 
ceed without it. 

The Chairman, Let me ask the question, Have you presented that 
letter yet? 

Mr. Orvis. No, sir. 

The Chairman. Do you have it? 

Mr. Orvis. Yes, sir. 

The Chairman. Has it been authenticated? 


Mr. Orvis. Yes, sir.^ 

The Chairman. And that letter contains a list of these rates. And 
do I understand that these rates were reductions and were made 
effective on the 15th of August following the memorandum, follow- 
ing the date of the memorandum? 

Mr. Orvis. Even slightly lower rates were made effective on that 
date, sir. 

The Chairman. Slightly lower than what? 

Mr. Orvis. Than the ones contained in this letter. In January 
the memorandum went forth, conferences had started in November 
and were continued as regards the rates, down to April 24 or 26. 

Mr. Frank. Mr. Orvis, is it your position that that rate reduction 
aided the major oil companies to tlie disadvantage of the independ- 
ents ? 

Mr. Orvis. Yes. 

Mr. Frank. Will you explain how? 

Mr. Orvis. The independents could truck cheaper than they could 
ship by rail. In fact, in many cases they had their own trucking 
equipment, so the independents were damaged in that way, at least. 
The lease sita.iation seems to have been adverse to them. 

Mr. Cox. You mean they were damaged because they couldn't get 
delivery by truck of the major companies from their refineries to their 
stations ? 

Mr. Or"s iS. That might necessarily do some harm when the rail rate 
was reduced below cost of transporting by truck, in certain cases. A 
man should use the cheapest method. 

Mr. Frank. Then how was it to their disadvantage? 

Mr. Orvis. In such cases as they had equipment of their own or 
contracts of other people to transport their stuff for them at a price 
which was better than the rail rates that were put in, they had to 
use the rail rates in spite of that or be without the materials. 

The Chairman. Or else use their own trucks. 

Mr. Orvis. The delivery would not be made to their trucks on pur- 
chases. That was part of it. 

The Chairman. Then you mean to say that it was part of this 
plan that the oil companies would refuse to deliver to trucks, whether 
they were owned by independents or whether they were trucks of the 
companies themselves. 

Mr. Orvis. That is right, sir. 

The Chairman. And that all the oil had to be transported by rail. 

Mr. Orvis. That is it. 

The Chairman. Was that done, actually? 

Mr. Orvis. Well, of my own knowledge, I know that some contracts 
ran for a period of some months after that and the expansion of 
trucking facilities was curtailed and no new contracts in many cases 
made with truckmen, but they had to run them out as of the time 
this went into effect. 

Mr. Frank. Except for those existing contracts, thereafter there 
was a refusal to make delivery to trucks ? 

Mr. Orvis. Yes, sir ; Mr. Harden said that only last year. 

1 Admitted to the record, infra, p. 9089, as "Exhibit No. 1275," appendix, p. 9321. 


Mr. Cox. You testified of two instances where that situation was 
explained to you by people who had been trucking; is that right? 

Mr. Orvis. That is right. 

Mr. Henderson. Then your opinion runs directly contrary to what 
Mr. Pelley said concerning whether the actual agreement became ef- 

Mr. Orvis. Did he say it did not? If he said that, it does run 
counter to that. 

Mr. Henderson. His letter says that the agreement was never put 
into effect, and -the nature of your testimony is directly contrary, 
that it was in effect so far as renewals of leases and deliveries to 
trucks were concerned. 

Mr. Orvis. I quite believe that; yes. 

Representative Williams. Have these truck lines gone out of 
■business generally? You have two instances where they had been 
seriously affected or had to change their location. Has it been gen- 
eral that the local trucking business in the oil industry has actually 
been curtailed? 

Mr. Orvis. It w^as curtailed at that time but not sufficiently to 
suit the railroads, and in the following year, in February, a new 
organized effort about putting in even lower scales to assure every- 
body to the rails and away from the trucks, took place, and some 
suits of law were brought on that new lowered motor competitive 
rate schedule. In other words, history repeated itself the following 
year, and the rates were driven down still lower. 

Mr. Henderson. Do you have any information concerning what 
happened to the growth of track-side stations after this period ? 

Mr. Orvis. I haven't, sir. 

Representative Williams. I am not entirely clear yet as to whether 
or not the trucking industry has been driven out of the business. 

Mr. Orvis. The trucking business has not been entirely driven 
out of business; no, sir. 

Representative Wuxiams. Has it been seriously affected by reason 
of this arrangement? 

Mr. Orvis. Yes ; I should say so, and it has been restricted to the 
short 4(J-50-mile hauls. 

Representative Williams. The rates, however, have been reduced, 
the freight rates have been reduced, whether it is by truck or rail- 
roads, by reason of this arrangement that has been made here. That 
has been the net result of it ; has it ? 

Mr. Orvis. Yes; but the rail freight rates were the ones that were 
reduced by reason of this. You said "whether by rail or truck." I 
say the rail rates were the ones that were reduced down to what 
the trucks were. 

Representative Williams. They didn't go below the truck jate as 
ii was originally established? 

Mr. Orvis. No; the first reduction brought it down very close to 
the truck rates which were supplied by the oi,l companies to the 
railroads to set their scale on. 

Representative Williams. Then when the rail rates were reduced, 
did the trucks reduce theirs? 

Mr. Orvis. I don't doubt that they did. That was not an Interstate 
Commerce Commission matter as of that time. 

124491 — 40 — pt. 16, sec. 3 17 


Representative Williams. Well, some of it may be; may it not? 
Some of the truck business may be interstate. 

Mr. Orvis. I say of my knowledge — I have no knowledge of what 
happened among the truckmen, but I have no doubt they went after 
some business by cutting their rates where they could. Those were 
private arrangements. 

Representative Williams. Then it has resulted in a kind of rate- 
cut war between the truck companies and the railroads? 

Mr. OR^'IS. Very much so. 

Mr. Cox. That is within the Southeastern territory. There has 
been no reduction from the Southwest into that territory. 

Mr. Orvis. No. 

Mr. Chairman, I intended from this point forth, unless there is 
further questioning, to go to the matter of pipe-line tariffs, but 
here is a breaking point. 

The Chairman. Have you introduced all of the letters that you 
propose to introduce with respect to this matter? 

Mr. Orvis. Yes, sir. 

Mr. Frank. Mr. Orvis, may I go back? Is it the implication of 
your remarks that the Pelley memorandum and what was done sub- 
sequently involve something like the following: That the railroads 
arranged with the major oil companies that they would get — the 
railroads would get — an advantage by puttino; the trucks out oi 
business, if possible, through a reduction of the freight-rate competi- 
tion with the trucks, and that on the other hand the major oil com 
panies would gain a benefit by having the railroads deny the leasee 
to the independent refiner? 

Mr. Orvis. That was one of the gains ; yes. 

Mr. Frank. So there was a quid pro quo between them ? 

Mr. Orvis. Yes. 

Mr. Frank. And that was one of the important aspects of the 
understanding, in your opinion? 

Mr. Orvis. It was; yes. 

Mr. Frank. That is your suggestion to the committee? I am not 
trying to say that your suggestion is correct. I am just trying to find 
out what you are suggesting. 

Mr. Cox. xlnd was it also an important part of the quid pro quo 
that the railroads would try to get the rates into the southeastern 
territory from the Southwest raised? 

Mr. Or\t:s. Yes; they said that very clearly. 

Mr. Cox. And you think that part of the agreement was consum- 
mated in part, at least, because although those rates were not raised 
the railroads successfully resisted efforts to lower them; is that right? 

Mr. Orvis. That is right. 

Mr. Frank. Thus preventing competition from the Southwest to 
the Southeast, to the disadvantage of the independents and the ad- 
vantage of the major oil companies; is that your point? 

Mr. Orvis. Yes. 

The Chairman. Before you leave that phase of the subject, I think 
it only proper that there should be placed in the record here the re- 
sponse of Mr. C. McD. Davis, vice president of the Atlantic Coast 
Line Railroad, to a letter or a communication from Mr. Brackett, the 
executive secretary of this committee. This letter from Mr. Davis 


is dated at Wilmington, N. C, on October 12, is addressed to Mr. 
Brackett, and reads as follows [reading from "Exhibit No. 1274"] : 

Replying further to your telegram October 9th, which was forwarded to me 
at Orlando, Fla., and receipt of which I acknowledged in a telegram October 
11th, stating that I was en route to Wilmington and expected to reach here 
today when I would have access to our file and answer the question pro- 
pounded in your telegram. 

I find upon an examination of the file that the letter in question was not 
written or signed by me personally but was dictated and signed in my name 
by Mr. J. W. Perrin, Freight Traffic Manager of this company. 

We do not have the original letter but enclose herewith a certified copy of 
the carbon copy in our file, together with Mr. Perrrn's letter of this date which 
is briefly explanatory of the contents thereof; also copy of the Court Order 
referred to in Mr. Perrin's letter. 

Then the letter to Mr. McD. Davis from the freight traflSc man- 
ager, signed "J. W. Perrin," dated October 15, 1939, as follows [read- 
ing further from "Exhibit No. 1274"] : 

Referring to telegram dated October 9, from Mr. James R, Brackett, Execu- 
tive Secretary, Temporary National Economic Committee, addressed to you, 
reading as follows : 

"Statement filed with the Temporary National Economic Committee by E. L. 
Orvis contains purported copy of letter written by you to Standard Oil Com- 
pany, New Jersey, Texas Company, American Oil Company, Sinclair Company, 
Shell Eaetern, and Atlantic Refining Company dated February 10, 1936 STOP 
First paragraph begins 'You are advised of the steps that have been taken by 
rail lines at Wilmington in connection with the various other lines reaching 
destinations in North Carolina, etc' STOP Last paragraph begins 'You will 
recall that during course of the conference between yourself &nd representa- 
tives of North Carolina railroads, etc' STOP Committee has instructed me 
to authenticate reputed letter. Will appreciate your informing me immediately 
whether letter in fact signed by you and forward to me special delivery a cer- 
tified copy of the letter. Committee hopes to dispose promptly of this matter 
so as to avoid issuance of subpoena." 

A certified copy of our carbon copy of the letter described in Mr. Brackett's 
telegram s enclosed herewith. The original letter bears your signature, but It 
was dictated and signed in your name by me. 

The said letter relates to contemplated reductions by the rail cartiers 
operating in North Carolina of the intrastate rates oh petroleum from Wil- 
mington, N. C. to points throughout North Carolina. 

At that time severe inroads were being made in the petroleum tonnage of the 
rail carriers out of Wilmington. Investigation disclosed that the traffic was- 
moving by private trucks of the producing and distributing oil companies, as 
well as by contract trucks. We were further threatened with " a project to 
initiate barge service up the Cape Fear River by which petroleum would be 
barged from Wilmington to Fayetteville for distribution by trucks beyond. 
In fact, representatives of several of the oil producing companies doing business 
at Wilmington advised us that if we wished to retain the traffic left to us and 
to prevent the diversion of additional traffic to the barge-truck route via Fayette- 
ville, reductions would have to be made in the all-rail rates. The purpose of the 
conference of December 20, 1935, referred to in the last paragraph of the letter 
of February 10, 1936, was to develop necessary information as to the extent 
of the competition from a rate standpoint, and, in particular, the threatened 
competition with the barge-truck route via Fayetteville. 

It was anticipated that there would be an effort made by interests at 
Fayetteville. N. C, to prevent the reductions in the rates from Wilmington 
from becoming effective, and the oil companies were requested to supply such 
information as would be helpful in the defense of thet reduced rates, if they 
should be attacked. The letter of February 10 was merely to inform the oil 
compariies of the injunction proceedings against the reduced rates (the City of 
Fayetteville having intervened ir the proceedings), and to remind them cf their 
' offer of assistance in defending the rates. 

The restraining order, issued by Judge Bamhill up m complaint of the 
Carolina Motor Service, Inc., John P Nutt Corporation and OH Transit Copi- 


pany, was duly heard before Judge W. C. Harriig of the North Carolina Superior 
Court of Wake County on March 21, 1936, and, after full hearing, Judge Harris 
not only dissolved the restraining order but dismissed the complaint. A copy 
of Judge Harris' order dismissing the proceedings is enclosed herewith. It 
should be added, none of the representatives of the oil companies aforesaid 
appeared at the hearing. 

There follows the acknowledgment of this letter, and a copy of 
the memorandum dictated by ]M&. Perrin and signed by the name of 
Mr. C. McD. Davis, and a co py of the judgment in the Superior 
Court of North Carolina for Wake County in the case just men- 
tioned, signed by ^. C. Harris, judge resident in the seventh judicial 
district, in which liS set aside the restraining order and dismissed the 

(The documents referred to were marked "Exhibit No. 1274" and 
are included in the appendix on p. 9318.) 

The Chairman. This is the action to which ^pu referred in that 
news report that you quoted, is it not? 

Mr. Orvis. No ; that is the Quality Oil, the one that is referred to 

The Chairman. This is a different one ? 

Mr. 'Orvis. This is one of the others. 

The Chairman. Who were the parties in the suit to which you 

Mr. Orvis. Quality Oil Transport and Quality Oil Co., Winston- 
Salem. That case was based on the rates put into effect on August 15. 

The Chairman. Who were the parties m the case to which you are 
referring? Can you give me the names of the parties? 

Mr. Orvis. Bert Bennett and Joe Glenn. 

ITie Chairman. Was that a suit in the State courts? 

Mr. Orvis. Yes ; that was under the State antitrust act. 

The Chairman. And what is your understanding of the disposi- 
tion of that suit? 

Mr. Orvis. I never knew until last night what the disposition was, 
then I learned last night that somebody had ascertained from the 
attorney that it was only coming on for a rehearing next week, I 
think the man 'said. 

Mr. Frank. The bill was dismissed by the court below and the 
plaintiff is appealing? 

Mr. Orvis. Yes; but it is still pending. This letter that has just 
been discussed was the one from which I quoted in my written 
statement filed with the committee, and since there has been so much 
about the letter it seems best to read just that quoted portion (reading 
from "Exhibit No. 1274") : 

Tou will recall that during the course of the conference between yourselves 
and representatives of some of the North Carolina railroads in New York on 
December 20, 1935, an understanding waa reached that if any legal obstacles 
iu the way of carrying out the proposed s(3iedule of rates were encountered, 
you gentlemen would render what assistance you could in the furtherance of 
the program. I therefore suggest that you attend or be represented at the 
hearing if you can possibly arrange to do so. 

The anomaly to me of having the railroad systems call upon the 
attorneys, or the traffic men of the oil companies to come and help 
them is all that I wanted to bring out. I do not know whether they 
went or not, and didn't say that they did. 


Mr. Frank. You have suggested, Mr. Orvis, in your memorandum 
that some of these arrangements have been disadvantageous to the 
railroads in net effect, and that they have lost profits as a result. 
Why would the railroads take steps which would thus be to their 

Mr. Orvis. Because of what I spoke of the last time I was betore 
you in^ connection with the dominance of the heavy suppliers of 
petroleum products. Is that understood? 

Mr. Frank. No. I wasn't here the last time, so perhaps I shouldn't 
ask you to go into it. 

The Chairman. Do you know of any case filed in the Federal 
courts on the basis of any action that you believe to have been taken 
with respect to freight rates as the result of the Pelley memorandum ? 

]Vr Orvis. I do not, sir. 

The Chairman. So far as you know, the only suits that were 
brought were brought in State courts and had to do with intrastate 
rates ? 

Mr. Orvis. Yes. 

The Chairman. What is your information, or what do the letters 
which you have found and which ha^e been authenticated, show with 
respect to the rates which were put into effect, as you say, in August 
following the Pelley memorandum? 

Mr. Orvis. Will you rephrase that aoout the rates? The rates 
went into effect — the first series of rates went into effect August 15. 

The Chairman. Were they intrastate or interstate rates? 

Mr. Orvis. They are intrastate rates; yes. Most of those hauls 
would be within a State. 

The Chairman. I am talking about the rates in that memorandum. 
Were they interstate or intrastate rates ? 

Mr. Orvis. Pardon me, Mr. Chairman, there weren't any rates in 
the memorandum at all, except thfese levels, and so forth, that they 
spoke about. 

The Chairman. Didn't you say a moment ago in response to an 
inquiry of mine that you had a memorandum there in which were 
set forth at length certain rates which became effective after 
August 15? 

Mr. Orvis. Those are mileage rates. If they were within the State 
they would be intrastate. 

The Chairman. Of course I know if they were within the State 
they would be intrastate, but I haven't examined it. I am asking 
you who have examined it whether they are interstate or intrastate, 
that is all. 

Mr. Orvis. They would be both, and there was a proceeding be- 
fore the Interstate Commerce Commission 

The Chairman. Mr. Cox, have you examined this? 

Mr. Cox. I have seen the schedule of rates — just so much a mile, 
no indication of which they are. 

Mr. Frank. They might be either inter or intra ? 

Mr. Cox. That is right. 

The Chairman. I don't know, but I must confess the material pro- 
duced by Mr. Orvis is of course of very great interest and of course 
of very much importance. It deals with a very significant factor iir 
the price of gasoline and other petroleum products. It deals with 


the most important subject of the transportation of petroleum prod- 
uces to the ultimate consumer, and my own feeling is that the staff 
of this committee ought to make some effort to get at the facts. I 
don't know how the other members of the committee feel about that. 

Kepresentative Williams. Who put these rates into effect, if they 
are rates ? I am like the Senator here, I haven't seen them. Is that 
what you call them, rates, freight rates? 

Mr. Oevis. Freight rates are filed with either the Interstate Com- 
merce Commission or the State commission if they happen to be 
intrastate. If there are both in a mileage scale they would have gone 
to both Commissions. 

Representative Williams. This schedule to which you have re- 
ferred and as I understand you have called them rates 

Mr. Orvis. Yes, sir. 

Representative Williams. Were they put into effect? 

Mr. Orvis. They were ; yes, sir. 

Representative Williams. How? 

Mr. Orvis. By filing tariffs on them. 

Representative Williams. Who filed them ? 

Mr. Orvis. The railroads. 

R presentative Williams. What railroads ? 

Mr. Orvis. These railroads in the Southeast. 

Representative Williams. When ? When did they do that ? 

Mr. Orvis. The first series when it became effective August 15, 

Representative Williams. Then it is your position that those rates 
were put into effect by these railroad companies in accordance with 
this plan they had made with the oil companies. 

Mr. Orvis. Yes, sir. 

Mr. Henderson. Mr. Chairman, you inquired how other members 
of the committee feel. Speaking for myself, it seems to me that the 
witness has indicated a line of contemplated action by a series of au- 
thenticated letters, which very reasonably can be supposed not to be 
the complete file of letters which passed between representatives of the 
transportation companies and representatives of the oil companies. 
He has also given a considerable amount of evidence that, whether 
or not the action taken was exactly as contemplated in the Pelley 
memorandum, at least it was sufficient to achieve about the same 
result, a result evidenced by certain complaints of trucking pom- 
panie's and independent dealers in the area aiffected. The question 
then arises : what should this committee do about it ? I don't believe 
that should be discussed in open meeting. 

The Chairman. We have a letter here from Mr. Pelley, dated Oc- 
tober 9, to Mr. Brackett, authenticating the A. F. Cleveland memo- 
randum which Mr. Orvis presented the last day. I think it is only 
proper that that letter should also be part of the record. I am inter- 
ested in the c^ncludi:ag paragraph of Mr. Pelley's letter. He says 
[reading from "Exhibit No. 1275"] : 

I further desire to call to j ?v.r attention that there was nothing strange or 
unusual about this procedure as the railroads individually and collectively 
are at all times giving consideration to requests for rate readjustments by the 
shippers individually and by groups, so that the correspondence which you 
request is nothing more than the usual and every-day occurrence and presents 
nothing more than the customary procedure in the handling of both class and 
commodity rates by the shippers and the railroad traffic officers. 


(The letters referred to were marked "Exhibit No. 1275," and are 
included in the appendix on p. 9321.) 

The Chaieman. I am impressed, I might remark, by the fact that 
it would be only natural for the railroads and the shippers to engage 
in conferences and discussions with respect to what rates should be. 
It would only be natural that the railroads should be influenced by 
the amount of traffic that they were likely to get from large shippers 
of petroleum products or shippers of any other products by comply- 
ing with the wishes of those shippers and it would be only natural 
also to think that perhaps in negotiations between railroads and big 
shippers, little shippers might be adversely affected. So all in all, 
it seems to me like a story of the utm.ost importance, and for my part, 
I would like to have our staff get the actual facts in this story. 


Mr. Farisii. Mr. Chairman, I have a request to make to the com- 
mittee. In view of the fact that the record is noAv made to a large 
extent Avith letters, and suggestions of actions in connection with the 
Pelley memorandum I ask the committee that they permit our coun- 
sel, who is here and who is familiar with the matter, to state for 
the record how the wnole question was handled by our organization. 

The Chairman. If there is no objection, I think the committee 
will be very glad to entertain that request. 

Mr. Farish. Thank you. 

Dr. LuBiN. Mr. Chairman, may I add in your request to the staff 
of the committee that they inquire further into the question as to 
whether it is customary for railroads contemplating freight rate 
cuts to try to make bargains with sliippers, whereby the shipper, 
in order to get a lower rate must agree to give up certain methods 
of transportation of a competing nature. 

Mr. Orvis. Who was to answer that question ? 

Dr. LuBiN. Our staff. 

The Chairman. Is it desired to make that statement now? 

Mr. Farish. I think it advisable, sir, that the record be made. 
Apparently we have reached a stage of fog in connection with it. 

The Chairman. You had completed your statement with respect 
to this question of freight rates? 

Mr. Orvis. Yes; the Southeast section; yes, sir, 

Mr. Cox. You had finished everytliing about the Pelley memo- 
X andum ? 

Mr. Orvis. Yes ; except I just wanted to say here that the Quality 
Oil suit, I have just been informed that I misunderstood what was 
said. The first trial of it has not come up and it will come up in 
November 1939 according to this week's National Petroleum News. 
It has never been tried. 

Mr. Frank. Well, then you were in error. That is not, then, the 
case that is on appeal. 

jNIr. Orvis. That is the case 1 said was on appeal, but it is not on 

The Chairman. Very well. This is an article appearing in the 

1 Mr. Farish testified before ttie committee October 23, 24, gncl 25. His testimony 
appears in Hearings. Part 17 


National Petroleum News for Wednesday, October 11, under the 
heading "Oil trucker''s suit against railroads, charging conspiracy, 
nears trial" [reading] : 

Washington, October 9. — A treble damage suit against four railroads operat- 
ing in North Carolina, filed by Quality Oil Transport Co. (subsidiary of Quality 
Oil Co., large, independent jobber) at Winston-Salem, N. C, and charging a 
"conspiracy" in violation of State antitrust laws to eliminate truck competition, 
will come up for trial in November before the North Carolina superior court, 
according to Fred M. Parrish, Quality Oil's lawyer, reached by long-distance 

State supreme court has already overruled the rails' demurrer. Mr. Parrish 
submitted in evidence an alleged copy of a letter addressed to the four railroads 
and signed with the name -of a major oil company official, with notation indi- 
cating that copies were sent to officials of nine other major companies (see 
N. P. N., May 6, 1936, pp. 11-12) . 

O'he etter in the Winston-Salem case referred to a conference allegedly held 
November 28, 3934, in New York, between representatives of southern petroleum 
8bipper.e and railroad officials in an endeavor to agree upon a scale of rates 
which it was felt would enable the southern lines to meet lyuck competition. 
It also suggested a scale of rail rates and concluded with the statement that 
it is to our mutual interest 'that definite action with regard to this matter and 
without delay. 

On August 15, 1935, the rails put into effect a scale of oil freight rates but 
not as low as suggested in the letter. However, on May 5, 1936, the rails again 
cut their rates, lower than the scale allegedly suggested by the suggested scale. 
Since then there have been still further reductions. 

Mr. Farish, who is your spokesman? 

Mr. Fauish. Mr. Hall, counsel of our company. 


The Chairman. Very good. Mr. Hall, will you come forward ? Do 
you solemnly swear the testimony you are about to give in this pro- 
ceeding shall be the truth, the whole truth, and nothing but the truth, 
so help you God? 

Mr. Hall. I do. 

The Chairman. Will you be good enough to give your name to the 

Mr. Hall. My name is Edwin S. Hall. I am a member of the bar 
of the State of New York, have been such since the spring of 1909. I 
am a member of the bar of several other jurisdictions. I became 
counsel ftir the Standard Oil Co. of New Jersey, a New J'^rsey corpo- 
ration, on September 20, 1920. I continued as such counsel until Sep- 
tember 1, 1927, when I became counsel for the Standard Oil Co. of 
New Jersey, a Delaware corporation. I became senior counsel of that 
company in the fall — I think it was September — of 1934, and I con- 
tinue as such counsel. 

The Chairman. Are you familiar with the facts of the case which 
has been discussed here, or the circumstances which have been dis- 
cussed here with respect to the Pelley memorandum? 


Mr. Hall. I am thoroughly familiar with the Pelley memorandum 
and have considerable familiarity with many of the other facts that 
have been discussed by the witness who has just withdrawn from the 


The so-called Pelley memorandum, being a letter on the letterhead 
of the Association of American Railroads, dated January 17, 1935, 
was addressed in our organization to Mr. R. G. Stewart, president. 

The Chairman. It was received by Mr. Stewart, I take it ? 

Mr. Hall. It was addressed to and received by him; yes, sir. He 
was addressed as president of the Standard Oil Co. of New Jersey, at 
26 Broadway. He was not such president at that time. He was not 
an officer of that company at that time or at any other time. He was 
general sales manager, but not an officer of the company. 

A copy of the letter was also sent to Mr. A. G. Phelps, who was 
addressed as vice president and traffic manager. Mr. Phelps, in turn, 
was not then and never has been vice president of the company. He 
is merely its traffic manager. 

I have not had an opportunity to compare the Pelley letter in the 
files of the Standard Oil Co. of New Jersey with the one just intro- 
duced by the preceding witness. I assume the one introduced is 
substantially correct. I will file for the record, if I may, the correct 
copy I have before me of the letter taken from the files of the Stand- 
ard Oil Co. of New Jersey. 

The Chairman. Of course, Mr. Pelley has authenticated the copy. 

Mr. Hall. With one correction, one word, and if I may, I would 
like to introduce the letter from our files so there may be no doubt 
about it. 

The Chairman. It may be so admitted. 

(The letter referred to was marked "Exhibit No. 1276" and is in- 
cluded in the appendix on p. 9323.) 

Mr. Hall. That letter was brought to my attention sometime be- 
tween its receipt following its date of January 17 and January 31. 
I have before me a correct copy of my reply to Mr. Pelley, a reply 
written on behalf of the Standard Oil Co. of New Jersey- The reply 
reads as follows : 

The Chairman. What was the date of it? 

Mr. Hall. January 31, 1935. The letter is addressed to Mr. J. J, 
Pelley, president. Association of American Railroads, Transportation 
Building, Washington, D. C. [reading from "Exhibit No. 1277"] : 

Tour letter of January 17 addressed to Mr. R. G. Stewart of this compahy has 
been brought to my attention. I am seriously disturbed over the possible appli- 
cation of the Federal and State Anti-Trust laws to the agreement you suggest. 
That agreement involves the curtailment of the use by the participating oil com- 
panies of meanss i-hey have available for competing one with the other. It also 
involves their participation in an agreement by the railroads to revise existing 
leases for filling stations on railroad firoperties and to discourage future leases. 
I wonder if your counsel have given any consideration to this problem. 

I likewise tender that for the record. 

The Chairman. It may be received. 

{ Ti)e let ter referred to was marked "Exhibit No. 1277" and/ is in- 
clxivied in tlu- r.ppendix on p. 9324.) 

Mr. Haix. Ttiat letter was dated January 31, 1935. In due course 
I receiveci from Mr. Pelley his letter dated February 1, 1935, reading 
as follows, the letter being on the letterhead of the Association of 
American Railroads, Mr. J. J. Pelley, president. It is dated Feb- 
ruary 1, 1935 [reading from "Exhibit No. 1278"] : 

This will acknowledge receipt oi your letter of January 31. The subject you 
refer to has been discussed with counsel. Uur general solicitor, Mr. J. Carter 


Fort, and Mr. A. F. Cleveland, vice president of the traffic department, expect 
td be in New York Thursday or Friday of next week to discuss with another 
company the same questions that you present. If agreeable to you, I shall be 
very glad to have them call on you also and discuss this subject at that time. 
Kindly advise if this will be satisfactory. 

I tender that letter for the record. 

(The letter referred to was marked "Exhibit No. 1278'' and is in- 
cluded in the appendix on p. 9324.) 

The Chaieman. It may be received. 

Mr. Hall. On February 4, 1935, I received a telegram from Mr. 
J. J. Pelley, addressed to me, reading : 

Kindly advise if it would be agreeable to you ta see Messrs. Fort and Cleve- 
land Thursday afternoon February seventh at two thirty or Friday morning ten 
thirty, your office. 

I have the original telegram in my files, Mr. Chairman. These 
copies have been prepared for convenience here. 

The Chairman. You desire to offer this for the record ? 

Mr. Hall. Yes, sir. 

The Chairman. It may be received. 

(The telegram referred to was marked "Exhibit No. 1279" and is 
included in the appendix on p. 9325.) 

Mr. Hall. On the same date, and before receipt of that telegram, I 
had written [reading from "Exhibit No. 1280"] : 

I expect to be at my office Thursday and Friday of this week and shall be 
glad to receive Messrs. Fort and Cleveland if they call. 

The Chairman. What was the date -of that i 

Mr. Hall. That letter is dated February 4, 1935. 

The Chairman. What was the date of your original acknowl- 
edgement ? 

Mr. Hall. January 31, 1935. This correspondence was coming 
along in rapid succession. 

May I beg your indulg-ence for a moment -vchile I refer to my 
original file, if you pleased 

The committee will recall that in the letter of February 1, 1935, 
from Mr. Pelley to me, in which liu first proposed a meetiug Avith 
Messers. Fort and Cleveland, he said that Messrs. Fort and Cle\eland 
were coming to New York to discuss -with av.other company the same 
questior- as I presented. Then, on FebiuavN' 4, 19;>5, I w^rote to Mr. 
Pelley as folloAvs [reading from "Exhibit No. 1280"] : 

I expect to be at ni.v office Thursday and Friday of this week and shall be 
glad to receive Messrs. Fort and Cleveland if they call. 

If another petroleum company has raised the (juestions I mentioned in my 
letter and Messrs. Fort and Cleveland expect to discuss the problem with its 
representatives, the matter might be handled at a joint confevenre. I think 1 
know counsel for all the companies mentioned in your letter aiul 1 feel quite sure 
any one of them would be glad to accept the projjosa] of a joint conference. If 
you will tell me the identity of the other compuny I v.'ill be glad to mention 
to its coimsel the possibility of a joint conference. 

Then, before I had signed and mailed the letter, Mr. Pelley's tele- 
gram of that date came in, so I added a jjostscript reading: 

Since dictating the above your telegram has been received. 1 will be glad to 
see jNIessrs. Fort and Cleveland Thursday afternoon at 2:30 

I offer that letter. 

The Chairman. It may be received. 


(The letter referred to was marked "Exhibit No. 1280" and is in- 
cluded in the appendix on p. 9325.) 

Mr. Hall. On February 5, 1935, I received the following telegram 
from Mr. A. F. Cleveland, vice president of the Association of Amer- 
ican Railroads [reading from "Exhibit No. 1281"] : 

Your letter fourth to Mr. Pelley. We were asked to meet with Mr. H. T. Klein, 
Vice President and General Counsel the Texas Company and have made definite 
appointment his office ten-thirty Thursday morning, February seventh. Mr. Fort 
and the undersigned will be glad to follow your suggestion for joint conference 
providing you can so arrange and will .vire time and place of same. 

I tender that telegram for the record. 

The Chairman. It may be received. 

(The telegram referred to was marked "Exhibit No. 1281" and is 
included in the appendix on p. 9325.) 

Mr. Hall. On rec:eipt of that telegram I telephoned Col. H. T. 
Klein and told him of the receipt of the telegram. I told him of the 
previous correspondence I had had with Messrs. Pelley and Cleveland, 
which has been introduced in the record, and asked if a joint confer- 
ence to cover the subject would be satisfactory to him. He said it 
would be, and thereupon, on February 6, 1935, 1 telegraphed Mr. A. F. 
Cleveland, of the Association of American Railroads, as follows 
[reading from "Exhibit No. 1282"] : 

Will meet you Thursday morning Ten-thirty Colonel Klein's Office. 

The Chairman. It may be received. 

(The telegram referred to was marked "Exhibit No. 1282" and is 
included in the appendix on p. 9325.) 

Mr. Hall. The conference was had. During the conference I in- 
sisted, and Colonel Klein shared my view, that the agreement pro- 
posed was possibly violative of State and Federal antitrust laws. 
The chairman and the committee doubtless will remember that at that 
time^.the National Industrial Recovery Act was still in effect. The 
suggestion was made during the conference that if the proposal of 
Mr. Pelley was to be seriously urged, we would have to advise our 
clients that we could not go forward with it unless the agreement 
had the approval of the President of the United States, which in our 
opinion would give it certain immunities from antitrust law prosecu- 
tion pursuant to section 4 (a), I think it is, of the National Industrial 
Recovery Act. 

About that time in our organization we had a change in general 
sales managers. Mr. R. G. Stewart, to whom the Pelley letter was 
addressed, resigned, and he was succeeded by a new man, at that time 
quite unfamiliar with the tilings that had gone on in our sales de- 
partment, even recently. Mi. R. T. Haslam. So after the conference 
wiih Messrs. Fort and Cleveland at Colonel Klein's office I felt it my 
duty to advise Mr. Haslam, who had succeeded to the general sales 
managership of the Standard Oil Co. of New Jersey, of the whole 
situation up to that time, and I would like to read to the committee 
and offer for the record my letter of February 18, 1935, to Mr. R. T. 
Haslam, who at that time had become our general sales manager. 
The letter was personally delivered. It was not sent through the mail. 
The letter is as follo\ts [reading from "Exhibit ""o. 1283"] : 

Mr. Stewart had some conversations with representatives of the Association of 
American Railroads ~ with respect to the discontinuance of trucking gasoline 


from terminals or refineries in the southeast for a distance in excess ot forty 
or fifty miles. After the conversations, Mr. Stewart received a letter from: 
Mr. Pelley, President of the Association, of which the enclosed is a copy. He 
then referred the matter to me. I told Mr. Stewart I was disturbed over the 
possible application of Federal and State Anti-Trust laws to the suggested 
agreement. He asked me to communicate my fear to the representatives of the 
Association and discuss the matter with them. During that discussion, which 
was held in the office of Colonel H. T. Klein, General Counsel of The Texas- 
Company, on February 7, Colonel Klein suggested to Messrs. Cleveland and Fort, 
representing the Association, that he would advise The Texas Company against 
entering into the proposed agreement unless the agreement had the approval of 
the President of the United States and was thus afforded the immunity from 
Anti-Trust Law prosecution accorded by the National Recovery Act to agree- 
ments so approved. The meeting with the Asssociation's representatives con- 
cluded with the understanding that the oil company representatives present 
would discuss with their executives the advisability of seeking Presidential 
approval of the contemplated agreement. 

I think the contemplated agreement should not be made unless we are assured 
through Presidential approval of immunity from prosecution for Anti-Trust Law 
violations. I shall be glad to try to develop the possibility of securing Presi- 
dential approval of the contemplated agreement if you wish it, although I think 
I should note at this time that I doubt the possibility of obtaining such approval. 

Mr. Phelps has views with respect to the advisability, from a practical stand- 
point, of our entering into the proposed agreement and he will discuss this 
phase of the problem with you. 

The Railroads are engaged in a vigorous attempt to restrict truck and bus 
operation to force the transportation of freight and persons back onto the 
rails. The petroleum industry feeling the Railroads' success in this endeavor 
would materially reduce the consumption of petroleum products, has been 
engaged in an equally serious attempt to prevent the enactment of the legislation 
desired by the Railroads. It would seem to me entirely inconsistent for th( 
petroleum industry to spend time and effort in opposing the Railroads 
sponsored legislation of this type while at the same time it makes an agree 
ment to restrict its own operation of motor vehicles. 

The Chairman. You use the phrase "Railroads' sponsored legi; - 

Mr. Hall. Yes, sir. 

At that time, Mr. Chairman, and even now, the railroads are e] 
gaged, if I understand the situation correctly, in using every legit 
mate means to restrict truck and bus operation so that the movemei 
of passengers and freight will continue on and revert to the rails, 
can spend the rest of the afternoon citing instances where that at 
tempt has been carried on, sometimes successfully, and sometimes no 
successfully. The petroleum industry has been engaged, I hope ir 
an equally vigorous attempt, to let the new methods of transportatior 
come into their full force and effect. 

Following the letter to Mr. Haslam 

The Chairman (interposing). You meant by that phrase that thi; 
particular prograin had been sponsored by the railroads. 

Mr. Hall. The meaning of the phrase contained in the last para 
graph of my letter just read, and to which the chairman refers, is 
that it refers to a wholly different matter. It refers to a broad 
general program of the railroads, not only to restrict petroleum 
transportation over the roads, but to restrict all sorts of transporta- 
tion over the roads, all orts of freight, bus operation, and every- 
thing of that sort. 

Anyone that has followed the situation in the last 10 years will 
surely be av/are of the railroads' attempt in that respect. 

The Chairman. What was your understanding as to the initiative 
in this particular matter referred to in the Pelley memorandum? 


Mr. Hall. My understanding of the initiative in that is that it was 
a proposal by the railroads, in the hope that they could persuade 
the petroleum industry to assist them in stemming this change in the 
mode of transportation from rails to motors, which had been going 
on so effectively .for the last 10 or 12 years. 

After the letter to Mr. Haslam dated February 18 was written I 
received word that representatives of the Association of American 
Railroads had been in conference with members of the Petroleum 
Administrative Board. 

(The letter referred to was marked "Exhibit No. 1283" and is 
included in the appendix on p. 9326.) 

Mr. Hall. The Petroleum Administrative Board was an advisory 
board created by Mr. Ickes, Administrator of the Petroleum Code, 
to assist him in petroleum matters. It is my understanding that 
the proposal of the American railways was looked upon with some 
favor by some members of the Petroleum Administrative Board, but 
they felt they could not go forward, I am informed, toward the 
securing of Presidential approval, unless public hearings were held. 

I was so convinced at the time that Presidential approval could 
not be obtained that I was unwilling to go forward with public 
hearings, and I replied that I had no desire to participate in public 
hearings seeking the Presidential approval. 

The matter was completely closea, so far as the Standard Oil Co. 
of New Jersey was concerned, by a letter dated March 26, 1935, which 
I wrote for the signature of Mr. R. T. Haslam, our general sales man- 
ager, and Mr. Haslam signed and mailed the letter. The letter was 
addressed to Mr. J. J. Pelley, president of the Association of Amer- 
ican Railroads, Transportation Building, Washington, D. C. 

Dbab Mb. Peixey: Your letter of January 17th, addressed to Mr. R. G. 
Stewart, ha? been brought to my attention. After very careful consideration 
we have reached the conclusion we cannot participate in the plan you suggest. 
Very truly yours, • 

R. T. Haslam. 

That was the absolute end of the Pelity memorandum and the 
thing that is suggested insofar as the Standard Oil Co. of New 
Jersey was concerned. 

I think, if the chairman will permit, I would like to make an 
observation or two with respect to the relationship between the sub- 
jects of the Pelley memorandum and the conference between repre- 
sentatives of the southern rail carriers and certain representatives of 
the traffic departments of several petroleum" companies to which this 
previous witness has referred. In making that observation I want 
to arouse the chairman's memory of conditions existing 

The Chairman (interposing). Before you undertake that, Mr. 
Hall, may I ask you at least one question ? 

Mr. Hall. Yes, sir. 

The Chairman. In your letter of January 31, 1935,^ which was 
the first acknowledgment of the Pelley memorandum, after outlining 
your doubts as to the legality of the proposal you concluded your 
letter with the sentence, "I wonder if your counsel have given any 
consideration to this problem," and in the response which you re- 
ceived from Mr. Pelley under date of February 1, 1935,^ the second 

^ "Exhibit No. 1277," appendix, p. 9324. 
2 "Exhibit No. 1278," appendli, p. 9324. 


sentence reads, "The subject you refer to has been discussed with 
counsel." Then he says, "Our general solicitor, Mr. Carter Fort, 
and Mr. A. F. Cleveland, vice president of the traffic department, 
expect to be in New York on Thursday," and so forth, leading up to 
the conference which was then held. 

Mr. Hall. Yes, sir. 

The Chairman. That conference wag held in the office of the attor- 
ney for the Texas company,^ as I understand it. 

Mr. Hall. Yes, sir. 

The Chairman. So I assume that the subject of tJiat conference 
involved the legality of the suggestion. 

Mr. Hall. Precisely. 

The Chairman. At the conference did the representatives of the 
railroads express their opinion? 

Mr. Hall. I haven't any definite recollection on that subject, Mr- 
Chairman. The opinion of counsel for the railroads would not have 
been particularly persuasive on me. I have my own views of the 
application of the antitrust laws to it. 

The Chairman. But evidently since the conference was arranged 
as tht^. result, of an exchange of correspendence initiated by your ex-^ 
pression of doubt, and your question as to whether or not this sub-* 
ject had been discussed by the counsel for the railroads, a letter 
which brought the response from Mr. Pelley, the author of the memo- 
randum, that this subject matter which 570U brought up had been 
referred to by counsel and had been considered by counsel — am I to 
understand that the conference was then held and that you now enter- 
tain no definite recollection of what your respective views were in the 
conference with respect to this particular question? 

Mr. Hall. I haven't any clearcut recollection of the words used 
in the conference. 

The Chairman. Well, of course I wouldn't expect you to remember 
the exact words, but I would expect you to have a general idea. 

Mr. Hall. I was coming to that, sir. It is my very definite recol- 
lection that I was so strongly opposed to my company entering into 
the agreement proposed by Mr. Pelley that I didn't even stop to 
consider whatever views Mr. Fort may have reached before the con- 
ference. Those were my conclusions and I was prepared to stand 
on them. The only thought in my mind during the conferenop was 
conveying those views emphatically to Mr. Cleveland and to Mr. Fort 
and then We went to discussing the possibility of getting around my 
objection by Presidential approval, which would suspend the opera- 
tion of the antitrust laws with respect to the agreement. 

Mr. Frank. Mr. Hall, under date of October 9, 1939, Mr. Pelley 
addressed Mr. Brackett, the executive secretary of this committee, 
and referred to the requested copy of letter written by Mr. Cleveland 
under date of April 26, and enclosed a copy and then went on with 
this statement.^ "I trust you will permit me to explain that Mr. 
Cleveland had a conference in New York under date of April 16, 
1935," that being 10 days prior to the date of this so-called Pelley' 

Mr. Hall. Pardon me, Commissioner Frank, April 16, 1935 ? 

1 Harry T. Klein, whose testimony appears infra, p. 9118, et seq. 

2 "Exhibit No. 1275," appendix, p. 9321. 


Mr. Frank. '35. 

Mr. Hall. That is 4 months after the Pelley memorandum. The 
Pelley memorandum is January 17, 1935. 

Mr. Frank. I'm sorry. This is on another subject. You are quite 
correct. But I just want to read you what he said. [Reading from 
"Exhibit No. 1275":] 

I trust that you will permit me to explain that Mr. Cleveland had a con- 
ference in New York undet date of April 16, 1935, at which he received a request 
as to certain rate adjustments which the oil companies stated would be neces- 
sary to place the railroads' freight adjustments on gasoline and refined oil, 
illuminating or burning, on a competitive basis in the Southeast with rates 
being charged by competing trucking companies. This suggestion was promptly 
submitted to the Southern lines and Mr. Cleveland's letter of April 26 13 in' 
answer to the request for readjustment of rates which he received. It does not 
provide the basis of rates which the oil companies requested but was the 
conclusion of the Southern lines as to what the proper rates should be. 

In that instance, then, it would appear that the suggestion for re- 
duction of rates had initiated with the oil companies rather than with 
the railroad company. 

Mr. Hall. I was about to discuss that phase of the transaction. 
Commissioner Frank, when the chairman interrupted me to ask fur- 
ther questions concerning the Pelley correspondence. 

Mr. Frank. Before you discuss it, let me call j^our attention to 
the concluding paragraph of the letter [reading further from "Ex- 
hibit No. 1275"] : 

I further desire to call to your attention that there is nothing strange or 
imusual about this procedure, as the railroads individually and collectively 
are at all times giving consideration to requests for rate readjustments by the 
shippers individually and by groups, so that the correspondence which you 
request is nothing more than the usual and everyday occurrence and presents 
nothing mere than the customary procedure in the handling of both class and 
commodity rates by the shippers and the railroad traffic officers. 

Mr. Pelley thereby indicates that such conferences at least as 
that which was held on April 16, 1935,' are not in any manner 
strange, but are usual. 

Mr. Hall. I share Mr. Pelley's view in that respect, Commissioner 
Frank. The letter of January 17, howeA^er, brought in some entirely 
strange subject to that type of conference. It brought in the ques- 
tion the previous witness has described as agreements to discon- 
tinue trucking, agreements to discontinue delivery into buyers' trucks, 
readjustment of mterterritorial rates by agreement, and agreement to 
reform certain leases. It was the first, second, and fourth of thosp 
four problems that disturlicd me under the antitrust laws. 

Mr. Frank. I see. May I ask you out of ignorance a question that 
does relate to the Pelley memorandum. Apparently there was to be 
something done about reformation of leases. 

Mr. Hall. Yes, sir. 

Mr. Frank. The previous witness has indicated in the memoran- 
dum which he prepared that the railroad companies make leases of 
property which they own and along their right-of-way either free 
or for no rent or for a very nominal rent. Would you care to discuss 
whetlier that is a practice and whether, if it is, it is in your opinion, 

Mr, Hall.' The railroads' practice of leasing property for filling- 
station purposes and for bulk -plant purposes? 


Mr. Frank. Yes. 

Mr. Hall. It is a practice, Commissioner Frank. The rental is a 
matter on which I can't speak with any definiteness. I understand — 
it is my impression, that the rentals are based on the railroad's in- 
vestment providing the railroad a return on their investment in the 
land. There is nothing unusual about those leases; they are preva- 
lent, 'SO far as I know, throughout the whole eastern part of the 
United States and I know nothing unlawful about them. 

The Chairman. Does your acquaintance with these leases go far 
enough to enable you to say whether or not special rates or more 
favorable rates of rental of sites upon the railroad right-of-way are 
allowed to lessees upon the basis of the amount of products which 
they ship ? 

Mr. Hall. I think there is no relation between the rent paid and 
the amount of the products shipped, Mr. Chairman. I have seen a 
good many of those leases. 

The Chairman. Do jy^ou think that an independent operator of a 
bulk plant could obtain a lease at as reasonable a rate upon the 
railroad right-of-way as the Standard of New Jersey, for exmple? 

Mr. Hall. , Yes, sir. 

The Chairman. You are aware, of course, that in the proposal out- 
lined by Mr. Pelley it was suggested that more favorable rates should 
be granted to the petroleum companies than to others ? 

Mr. Hall. No; quite the contrary. 

The Chairman. You didn't understand that so? 

Mr. Hall. If I understand Mr. Pelley's letter correctly it indi- 
cates that more favorable rates ha,d been granted to independent oper- 
ators, private filling-station operators, than to the large oil compa- 
nies, and that Mr. Pelley's proposal was that the practice be discon- 
tinued and the previous leases so far as they had been granted be 
reformed under circumstances permitting. 

The Chairman. You misunderstand me. I was referring to the 
future; that he was proposing a program by which the large ship- 
per, these oil companies who would abandon their trucking, would 
receive the favorable consideration. 

Mr. Hall. No ; proposing a program of equality, Mr. Chairman. 

The Chairman. You understood this to mean- equality? 

Mr. Hall. Yes, sir. 

Mr. Frank. Is it your understanding that not alone will the rentals 
be just as favorable to the small company as to the large, but that 
the small company can as easily obtain a lease at whatever the rate is 
as the large company? 

Mr. Hall. Yes, sir. 

Dr. LuBiN. Mr. Hall, before we leave this phase of the question, 
do you know what happened to the trucking operations of your com- 
pany? First, did the Standard Oil of New Jersey have any of its 
own trucking operations in North Caroline at this time? 

Mr. Hall. Yes, sir. 

Dr. LuBiN. After you had written to the r 'Iroads' president, Mr. 
Pelley, or ut least having 'dictated a letter foi signature by your sales 
manager, was there any change in the policy of the Standard Oil of 
New Jersey in transporting oil products in North Carolina? 


Mr. Hall. We had been operating on the policy of favoring exist- 
ing carriers wherever we could, wherever there was an equality 
or an approach of equality of rates. After the time of the Pelley 
request there were railroad reductions in a railroad endeavor to get 
themselves competitive with the motortrucks. The railroads haven't 
yet caught up with the motortrucks. The motortrucks in many in- 
stances are maintaining transportation rates lower than the railroads 
today. We have gone on — ^I haven't the detail of the situation but 
I am sure. we have gone on and expanded our own fleet of trucks 
engaged in hatding up to several hundred miles ; we hav6 employed 
contract haulers and nave permitted our customers to come to our 
plants and do long-distance hauling of merchandise they purchase 
from us. 

Dr. LtJBiN. Was that equally true in 1935 as it is today ? 

Mr. Hall. It has been a gradually developing program. I recall 
one instance where there was an extensive expansion of our own 
trucking facilities engaged in this particular type of operation. I 
can't exactly fix the detail. I merely know that the expansion of the 
program, the purchase of a considerable number of pieces of truck 
equipment, took place. 

Dr. Ldbin. You don't know what happened, however, in 1935 as 
to whether there was curtailment or increase in that particular year? 

Mr. Hall. Not in that particular year. I think that is about the 
time that we started materially expanding our own motor transpor- 
tation facilities. 

The Chairman. Let me refer to Mr. Pelley's memorandum, the 
last sentence of the second paragraph. 

Mr. Halt.. Yes, sir. 

The Chairman. The last sentence of the second paragraph {read- 
ing from "Exhibit No. 1269"] : 

' Railroads In Southeastern Territory will reform as rapidly as seems advisa- 
ble existing leases covering railroad property used for filling-station puriwses; 
they will discourage future leases on terms more favorable to lessees than under 
the reformation plan. 

The interpretation of that sentence would appear to depend upon 
an understanding of what the reformation plan was. Dp you know 
what it is? 

Mr. Hall. I do not with certainty, Mr. Chairman. This is a mat- 
ter that ori^nated in Mr. Pelley's mind pr in the minds of some 
of his associates in the Association of American Railroads. So far 
as I know previous suggestions had not been made to them, cer- 
tainly from my company, and I have to look to the structure of the 
sentence as you do to get the meaning of it. I have no knowledge 
of my own. 

The Chairman. Well, then, how did you come to the conclusion 
expressed a moment ago in response to my question ? 

Mr. Hall. Largely because I was aware there were leases lower 
than we had enjoyed and we were disturbed by' those low leases as 
they created an unfair competitive advantage. 

The Chairman. But so far as the language itself goes, and so far 
as your personal understanding goes, your interpretation of that 
sentence is as vague as my own ? 

124491— 40— -pt. 16, sec. 3 — —18 


Mr. Hall. Precisely, from the language itself. 

The Chairman. You may proceed with the statement that you 
were initiating at the time we interrupted you. 

Mr. Hall. The previous witness has impressed me as endeavoring 
to tie together a conference held in New York between representatives 
of the southeastern rail carriers, representatives of the oil companies 
shipping merchandise via those carriers, the Pelley memorandum of 
January 17, 1935, and certain rate reductions which took place in the 
summer of 1935, August, I believe it was. 

I believe there is no such connection. I mentioned when I was in- 
terrupted that to thoroughly understand the situation one had to 
recall the condition existing in 1933 and 1934. Those were years of 
depression, years of relatively limited business activity ; many types 
of business were seekmg any way they could to augment their income, 
and the motortruck operators not having the usual amount of mer- 
chandise to carry were seeking, along with other businesses, further 
income ; they were seeking petroleum business. 

The Chairman. What was the date' of your letter in which you 
expressed the decision of your company to have nothing to do with 
the plan? 

Mr. Hall. March 26, 1935. 1 

The Chairman. What was the date on which the rates were re- 

Mr. Hall. I think the date was August 15, 1935. 

The Chairman. Were you still in touch with the situation during 
that time? 

Mr. Hall. No, sir. My touch with it has been reconstructed by 
examining the files that were built up in the organization at the time. 

The Chairman. Your organization had no further correspondence 
about this, did it ? 

Mr. Hall. About the Pelley letter ? 

The Chairman. Yes. 

Mr. Hall. That is correct, sir. 

The Chairman. Did it have any further interests in the program ? 

Mr. Hall. Not in the program proposed by Mr. Pelley. 

The Chairman. 'Did it follow the question of the reductio". of the 
rates ? 

Mr. Hall. Yes, but that is not the program proposed by Mr. Pelley. 
Mr. Pelley's program with respect to rates was an elevation of the 
rates, an. elevation of the interterritorial rates, which are the rates 
from the Mississippi River Valley to eastern points. You will find 
that, I think, in the second paragraph of Mr. Pelley's memorandum. 

The Chairman. That, you say, was an increase of rates that was 
proposed ? 

Mr. Hall. I so understand it, sir. 

The Chairman. Then why were thei-ailroads proposing to increase 
the freight rates on petroleum products to the petroleum companies 
with any expectation: that , the petroleum companies would accept 

Mr. Hall. I think the answer to the question would involve an 
interpretation of Mr. Pelley's mind. I have some doubt of ray ability 
to do that, but I suspect from the context of the letter that the pro- 
posal was to increase the inter territqrial rates which Mr. Pellejr hoped 
would prove attractive to the oil industry and would certainly be 


attractive to the railroads at the same time, as was stated here. I 
suspect what was in Mr. Pelley's mind was the idea that the shippers 
would not be so keen to move merchandise from the rails to the motors 
for carriage and that Mr. Pelley could escape by that route*— the 
southeastern railroads could escape by that route. 

The Chairman. How could the railroads eliminate truck competi- 
tion by raising their rates ? 

Mr. Hall. Mr. Pelley in his letter is proposing that the shippers 
in exchange for the advantages tendered them, take an arbitrary 
stand in refusing to let their merchandise be shipped via the motor- 

Mr. Frank. What were those advantages? 

Mr. Hall. Mr. Pelley's letter lists four things which ha\o been 
described by the preceding witness. I beg your pardon, the witness 
■ didn't describe the advantages. The advantages are the reformation 
of leases, which apparently was Mr, Pelley's idea to make the cost of 
leases higher, more commensurate with the ownership of sites for 
those stations. Mr. Pelley's letter seems to me to propose higher 
interterritorial rates which to oil companies confronted with com- 
petition from producers and refiners in the Southwest, Mr. Pelley 
apparently suspected would be an attractive thing. 

Mr. O'CoNNELL. Would it? 

Mr. Hall. I am not prepared to discuss all the companies' situa- 
tions. I am unable to see how it would be particularly attractive to 
my company. 

Mr. O'Connell. How about the reformation of leases? 

Mr. Hall. Reforming of leases is a matter of rental, as I under- 
stand the Pelley letter. 

Mr. O'Connell. Would the reforming of leases be of some advan- 
tage to your company? 

Mr. Hall. Of some slight advantage, perhaps, in that it would 
put the cost of unoccupied railroad property for bulk plant or filling 
station purposes more nearly in line with the cost to one who owned 
the property for those purposes. We have very few, if any, prop- 
erties on railroad leases. We own most of our facilities, 

Mr Frank. That goes to indicate, then, that the leases made by 
railroads at least as of the date of the Pelley memorandum were at a 
rental below that and below the cost to one who owned property. 

Mr. Hall:- I would imagine that was true. I haven't any exact 
information. Commissioner Frank. 

Mr. O'Connell, One more question on this interterritorial rate. 
Does your company ship much oil on the basis on which they pay 
interterritorial rates? 

Mr. Hall. Relatively little. 

Mr, O'Connell. Most of your petroleum products travel how? 

Mr. Hall, Most of our petroleum products sold in the southeast- 
ern territory under discussion manufactured on seaboard points are 
shipped by tanker from refineries in the Gulf around to seaboard ter- 
minerals at points like Charleston, S. C, Wilmington, N. C. 

Mr. O'Connell. Would it not be fair to conclude from that that 
as between your company and companies not in a position to take 
advantage of the favorable transportation by tanker, that an increase 
in interterritorial freight rates would be of advantage to your com- 
pany ? 


Mr. Hall. It is my recollection of the conditions at that time 
that there was very little petroleum merchandise coming on the 
rails from west of the Mississippi points of origin to the eastern 
seaboard where we were operating. That leads me to believe that 
we would not be particularly interested in the adjustment of inter- 
territorial rates. 

Mr. O'CoNNELL. I see, but to the extent that oil was being shipped 
on that basis, I take it an increase in rates would make it mat much 
more difficult. 

Mr. Hall. To a very limited extent, but I insist the extent is so 
small as to be negligible. 

Mr. O'CoNNELL. You don't know how much oil was being shipped 
in that way? 

Mr. Hall. Not in quantity; no, sir. 

The Chairman. Mr. Hall, I think it is important that we get a 
clear understanding of this memorandum and a clear understanding 
of your interpretation of the memorandum, so at the risk of laboring 
the point a little bit I am going to read Mr. Pelley's memorandum 
and ask for your interpretation of it. 

It begins [reading from "Exhibit No. 1269"] : 

Based upon discussion with Mr. Cleveland, it is my understanding that In 
view of certain conditions to be later referred to herein you have stated. * • * 

Now this is a — 

Memorandum of discussion regarding transportation of petroleum products in 
the Southeast. 

It was addressed to your company. Whom he means by "vou," I 
don't understand. Whom do you think he means by "you"? 
Mr. Hall. I don't know, sir. 
The Chairman (reading further from "Exhibit No. 1269") : 

♦ ♦ * you have stated that in the southeast you will discontinue trucking 
from your water terminals. 

How about the second "you"? 

Mr. Hall. I still am in doubt concerning the meaning of it. 

The Chairm'an. One would normally assume that this "you" re- 
ferred collectively lo the petroleum companies, would one not? 

Mr. Hall. That is a possible interpretation. I am certain, how- 
ever, it didn't, because I am certain there were no meetings of the 
petroleum companies where this subject was discussed. 

The Chairman. What other interpretation can one put upon it 
since it was a memorandum addressed to petroleum companies ? 

Mr. Hall. I am at a loss, sir. 

The Chairman. You said it was a possible interpretation. Since 
you limited it that way I wondered what other interpretation you 
could put upon it. 

Mr. Hall. I am at a loss for any other interpretation. 

The Chairman. Then you and I agree there. 

(Reading further from "Exhibit No. 1269") : 

♦ ♦ * you will discontinue trucking from your water terminals or refin- 
eries ♦ ♦ * 

referring to the water terminals or refineries of the petroleum com- 

Mr. Hall. That would be a reasonable inference from the context 
of the letter. 


The Chairman (reading from the same exhibit) : 

♦ * * you will discontinue trucking from your water terminals or refineries 
to the interior for distances in excess of 40 to 50 miles (which is the approxi- 
mate limit of the customary filling station distribution), whether service by 
truck for greater distances is being performed by outside agencies or by trucks 
of your company, and that you will simultaneously discontinue delivering these 
products to dealers' or buyers' trucks at your water terminals or refineries. 

Now, what does that proposal mean to you ? 

Mr. Hall. That proposal means that Mr. Pelley was proposing 
that we would not ship by our own strucks, by the trucks of con- 
tract carriers, or permit dealers having places of business more than 
40 or 50 miles away from our water terminals to come to our ter- 
minals for their merchandise. In other words, we would not engage 
in ourselves, contract for, or permit our customers to engage in 
the hauling of petroleum merchandise for distances — ^hauling of pe- 
troleum merchandise by motortruck — for distances in excess of 40 or 
50 miles back inland from the water terminals. 

The Chairman. "* * * for distances in excess of 40 to 50 miles." 

Mr. Hall. Yes, sir. 

The Chairman. Now, have you stated that correctly ? Does he not 
propose that you will discontinue delivery? 

Mr. Hall. Well, I should have put in the conjunction that we 
will not engage and will discontinue any such practices that we had 
in vogue at the moment. 

Mr. Henderson. Mr. Chairman, the language seems clear to me, as 
it does to you, that it was not Mr. Pelley's proposal. 

The Chairman. Mr. Henderson, let us get Mr. Hall's interpre- 
tation of the proposal and then we can determine who was the author 
of it. What is the meaning of the phrase "whether service by truck 
for greater distances is being performed by outside agencies or by 
trucks of your company" ? 

Mr. Hall. That is the part of the proposal which prompted me to 
say a moment ago that Mr. Pelley was including the idea that we 
would not engage in new operations for hauling in excess of 50 miles 
or continue any existing arrangements for hauling in excess of 50 

The Chairman. Now, this left you free to use trucks for all pur- 
poses by contract or your own trucks for the delivery of petroleum 
products up to 50 miles from refinery or terminal ? 

Mr. Hall. I would so interpret the letter, yes, sir. 

The Chairman. That is what the oil companies were to do, they 
were to abandon the use of trucks under the terms that you have just 
now described. 

Mr. Hall. I think that is the proposal Mr. Pelley made. 

The Chairman. Then the second paragraph [continuing to read 
fron. "Exhibit No. 1269"] : 

Railro.-'ls in Southeastern territory, in order to make this arrangement ah 
effective on^^and to stabilize the distribution of these products, will use their 
best efforts to bring about a readjustment of interterritorial rates on these 
products into Sdutheastern Territory on the same rate level as fixed by the 
Interstate Commerce Commission within that territory, it being recognized that 
in order to make this change in freight rates it will be necessary to obtain 
relief from oustanding orders of the Interstate Commerce Commission. 

What is your understanding of that proposal ? That, I take it, is 
the consideration to be offered by. the railroads for the performance 


requested or suggested by the petroleum companies in the first 

Mr. Hall. My understanding is that at the time the letter was 
written, in the early part of 1935, the rates in the Southeastern terri- 
tory were higher on a relative basis than the intraterritorial rates 
governing movements from points of. origin west of the Mississippi 
mto the Southeastern territory ; that the Pelley proposal was that the 
intraterritorial rates would be increased to the same relative level as 
the rates within the Southeastern territory then prevailing. 

The Chairman. And did he consider that to be a concession 
granted by the railroads, to the companies? 

Mr. Hall, Apparently he did. 

The Chairman. Did you regard that as a concession? 

Mr. Hall. I explained a few minutes ago that I considered it of 
very little importance to my company. 

The Chairman. Would it be of any importance to your company? 

Mr. Hai4j. I am ngt aware, Mr. Chairman, that it would be. 

The ChairmaNv Woul^ it be of importance to any company ? 

Mr. Hall. I am not familiar with the operations of all the com- 
panies in this southeastern territory. 

The Chairman. Was it discussed at the conference? 

Mr. Hall. No, sir. 

The Chairman. This was not — the interpretation of the memo- 
randum was not a subject of the conference? 

Mr. Hall. No, sir. 

The Chairman. I take it the only subject of thfe conference was 
the legality or illegality. 

Mr. Hall. Yes, sir. 

The Chairman. Then did you assume that if it was a legal thing 
to do it would be a desirable thing to do ? 

Mr. Hall. I didn't carry my consideration of it to that j)oint, Mr. 
Chairman. I had a hurdle l>efore I could get to that point and I 
never succeeded in topping the hurdle. 

The Chairman. Why hold a conference if it was not a desirable 
thing to do and the only obstacle was the illegality ? 

Mr. Hall. To try to be courteous to the president of a great or- 

Mr. Henderson. Mr, Hall, there is a little difference here as to the 
proposals. Is it possible that Mir. Stewart may have gone this far in 
representing your company as being willing to make these discon- 

Mr. Hall. Unfortunately Mr. Stewart is no longer with us ; I have 
h"ad no opportunity to search his recollection on the subject. I think' 
ihe whole correspondence indicates Mr. Stewart had not committed 
the company in any respect because certainly I stepped in and ex- 
pressed my view and encountered no difficulty in impressing my view 
with respect to the legality. 

Mr. Henderson. Mr. Stewart terminated his connection with the 
company very shortly thereafter, did he not? 

Mr. Hall. Yes, sir. 

Mr. Henderson. Did this have anything to do with his termina- 


Mr. Hall. I doubt it very much indeed. I wasn't present when 
his services were terminated and I can't speak with any knowledge 
of the cause of the termination. 

Mr. Henderson. You indicate that you stepped in there. Did you 
have any discussion with Mr. Stewart as to what his commitments 
were in these preliminary negotiations? 

Mr. Hall. No, sir; I did not. 

Mr. Henderson. None at all? 

Mr. Hall. No, sir; the traffic manager brought the letter to my 
attention and I prepared the letter to Mr. Pelley thereupon. 

Mr. Henderson. Without any consultation with Mr. Stewart who 
had been representing your company? You made no inquiry as to 
how seriously Mr. Stewart may have committed the Standard Oil of 
New Jersey, although a connotation can certainly be placed here that 
Mr. Stewart did make the proposal which you questioned as being 
violative of the antitrust acts? 

Mr. Hall. No, sir ; I did not. 

Mr. Henderson. Is there any explanation you would offer con- 
cerning that omission? 

Mr. Hall. The traffic manager described it as, and it appeared 
to me as, a proposal from Mr. Pelley. I had no hesitancy in ex- 
pressing and acting on my own conception of the application of 
the antitrust laws to it. 

Mr. Henderson. Bein^ a lay lawyer, I think I would agree with 
you on your interpretation, but I was not asking what your inter- 
pretation was. I was trying to get at this question whether you 
were sure in your own mind that the representatives of your company 
who were in this before it came to your attention thvoigh the traffic 
manager had gone this far. 

Mr. Hall, I didn't make any inquiries on that subject, Mr. Hen- 

Mr. Henderson. One other question. You indicated that as far as 
you could see there was no connection between the Pelley letter and 
its proposals, from whatever source derived and what subsequently 
took place, for example, in the Carolina reductions. Did I gather 
that correctly? 

Mr. Hall. That is correct. 

Mr. Henderson. Did you have any participations with represen- 
tatives of your company who met through Mr. Cleveland with the 
representatives of the southern railroads? . 

Mr. Hall. No, sir. 

Mr. Henderson. And you believe that that was entirely inde- 
pendent of any connection with the other proposal ? 

Mr. Hall. I do, sir. 

Mr. Henderson. Maj^ I call your attention to a part of the letter 
dated April 26, 1935, addressed by Mr. Cleveland to the various 
petroleum company representatives, of which Mr. A. K. Phelps of 
your company seemed to have been a recipient. He said [reading 
from "Exhibit No. 1275"] : 

I regret deeply that the more constructive original program became impos- 
sible, but I am happy in the thought that the impossibility resulted from no 
failure of a proper cooperation on either side, but was solely due to forces 
over which neither side had any control. 


Might I suggest to you that the forces over which you had no 
■ control may have been the impossibility of securing the approval 
of the President of the United States, via the code, and so forth, that 
that might have been the impossibility he was referring to there ? 
It was very clear in Mr. Cleveland's mind that there was something 
more than just this question concerning what the oil companies would 
suggest as to mileage rates in competition with the trucking com- 
panies, and the language there is subject to the interpretation I have 
placed on it. 

Mr. Hall. Mr. Henderson, I have been waiting an opportunity, 
after the chairman finished his questions, to explain in a connected 
way the conference of November and the matter referred to in that 
letter. I construe that as merely a polite expression in Mr. Cleve-- 
land's mind of his regret that the matter proposed by Mr. Pelley in 
his letter of January 17, couldn't be carried through. 

Mr. Henderson. That was what I was asking, whether or not this 
was in their minds and did relate to the program. 

Mr. Hall. I think that is an entirely possible construction of Mr. 
Cleveland's letter. 

Mr. Henderson. If that is a possible construction of some of these 
acts which seemingly to you have no connection, might they not 
still have been resident in people's minds and have been subject to 
the general quid pro quo arrangements which were under discussion 
at that time? 

Mr. Hall. I do not so understand it. 

Mr. "Henderson. Despite the effect that the Carolina freight re- 
duction may have had? 

Mr. Hall. The expression in the letter which you have just read 
does not change my opinion in that respect at all. 

Mr. Frank. May I ask this? In the prepared statement of the 
previous witness, after he discusses the Pelley memorandum and 
quotes it, he says — I am quoting : ^ 

The letter dealt with a situation that had been having attention since the 
preceding November, when the self-styled representatives of the oil industry, 
exclusively majors, had submitted to the railroads a proposal for establishing 
a scale of rates to apply to shipments to a distance of 250 miles from the sea- 
board terminals, the scale being based on the lowest cost per mile obtainable 
for handling bulk petroleum products, whether by company-owned motor trucks, 
contract carrier trucks or common carrier trucks. Between November 1934 and 
January 1935 the vice president of the Association of American Railroads had 
approached each major oil company operating in the Southeast to explain the 
deal or bargain in contemplation. • 

He interprets the facts as he knows them. 

Mr. Hall. May I note an exception to that conclusion. I think he 
interpreted the facts as he would like to have them. 

Mr. Frank. Perhaps so, but there is at least this much color to 
his suggestion that there had been some conferences of some kind 
preceding Mr. Pelley's memorandum, or letter, in that Mr. Pelley, in 
the first paragraph, which the Chairman went over with you in some 

1 Reading from "Exhibit No. 1293." 


detail says, addressing Mr. Stewart of your company [reading from 
"Exhibit No. 1269"] : 

Based on discussion with Mr. Cleveland, it is my understanding that in view 
of certain conditions to be later referred to herein, you have stated. 

And so forth. 

Now, do you want the committee to believe that this letter from 
Mr. Pelley sprang forth quite like Minerva, without any previous 
activity on anybody's part, and that it was a purely spontaneous sug- 
gestion of his and that he imputed to persons that had never met 
with him certain ideas which were solely his own? 

Mr. Hall. You are imputing many things I haven't said, Commis- 
sioner Frank. 

Mr. Frank. Perhaps! I am unfair. I didn't mean to be. I will 
rephrase my question. Do you think that Mr. Pelley just sat down 
and wrote this letter after talking with Mr. Cleveland and that Mr. 
Cleveland had never had any conference with Mr. Stewart that might 

five Mr. Cleveland and Mr. Pelley the idea that Mr. Stewart might 
e interested in the proposal? 

Mr. Hall. I don't know whether Mr. Stewart and Mr. Cleveland 
had any conversation or not. I explained awhile ago that I had no 
knowledge of such conversation. I have had no opportunity because 
of Mr. Stewart's no longer being with us and being in another section 
of the country and I understand being ill, to check the matter with 

I do want to insist whenever I get an opportunity if I may, Mr. 
Commissioner, that the November meeting and the Pelley letter, were 
wholly disassociated subjects and when I have an opportunity I will 
be glad to expand on that theory. 

Mr. Henderson. May I be pardoned for another interruption. 
Concerning this question of there being complete disassociation be- 
tween the Pelley memorandum and the Pelley letter and subsequent 
action, Mr. Orvis testified today to a personal conversation with a man 
by the name of Gresham from Standard Transportation of Kaleigh, 
N. C, who had been trucking in North Carolina products of the 
Standard Oil Co. of New Jersey. He told Mr. Orvis in the presence 
of a witness, that his purpose in coming to New York was to see 
about moving his fleet of trucks to Virginia to serve the Standard 
Oil Co. there in the transportation of products, because it was no 
longer possible in the Carolina territory for purchasers of petroleum 

Eroducts from the major companies to have these products hauled 
y his trucks. And he said he had been told that very morning by 
the traffic department of the Standard Oil of New Jersey not to put 
his plan to go into Virginia into operation, because they were going 
to discontinue it there, 

Now did the Standard Oil Co. of New Jersey discontinue that kind 
of service by truckers in the Carolinas at some period immediately 
following the sending of Mr. Pelley 's letter? 

Mr. Hall. No, sir. 

Mr. Henderson. Then, do you believe this Mr. Gresham completely 
misunderstood ? 


Mr. Hall. I explained to the committee some time ago that it was 
the policy of the company at that time to keep the movement of its 
merchandise on the rails so far as competitive rates with other forms 
of carriers would permit. The Gresham situation becomes clear when 
one understands the conference of November 30 and the rate reduc- 
tion of August 15 which I am still awaiting an opportunity to explain 
to the committee. 

Mr. Henderson. Before we get into a 

Mr. Hall (interposing). I am quite willing: to answer any ques- 
tion. I just want an opportunity to answer this thing when the time 

Mr. Henderson. There. is no doubt in your mind that it was not 
possible for him to continue in business in North Carolina. 

Mr. Hall. There is no doubt in my mind. I do not knov/ the 
situation. I do know there was never a time when we were not using 
trucks after they became available to us. 

Mr. Henderson. But you did make some shifts in order to give 
some hauling to the. rails after that time. 

Mr. Hall. I am not aware that any merchandise was taken away 
from truckers fully competent to handle it on a lower rate than the 
rails. I am not aware of the details of the Gresham transaction of 
which you speak. 

Mr. Henderson. Just one more observation and then I will con- 
clude. Mr. Cleveland in his letter of April 26 to Mr. Phelps had 
another felicitous paragraph, the concluding paragraph [reading 
from "Exhibit No. 1275'^] : 

Finally in conclusion I want to express the hope that the representatives of 
the oil company will fully appreciate that which the southern carriers are pro- ' 
posing, and that that appreciation will be proven in a practical way by the oil 
companies using the rail facilities to the fullest extent possible. 

Do you think there was no connection between that pious expres- 
sion of a hope and what happened to Mr. Gresham ? 

.Mr. Hall. I think the connection would be the level of the rate 
quoted by Gresham at the time and the level of the rate quoted by 
the railroads at the time. 

The Chairman. Proceed with your statement, Mr. Hall. We will 
try to restrain our curiosity until you have completed. 

Mr. Hall. I am quite willing to answer questions. I just want to 
stick with it until I get this explanation. 

The Chairman. Certainly, the committee realizes that. 

Mr. Hall. In the fall of 1934, 2 months or more before the Pelley 
letter of January 17, 1935, was written, the southern carriers asked 
the traffic men of the petroleum companies to meet with them in New 
York to discuss what rates were necessary, what lower rates, what 
reduction in rates in this southeastern territory were necessary to 
arrest this change of transportation from the rails to the motor car- 
riers. That meeting was held at the Vanderbilt Hotel in New York 
on the 28th day of November 1934. I think probably the best way 
to describe that meeting is to read a memorandum prepared by Mr. 
E. D. Sheffe, assistant traffic manager of the Standard Oil Co. of New 
Jersey at the time. "Mr. Oliver" — parenthetically — Mr. Oliver is 
with the Southern Railway, "acted as chairman." 

The Chairman. This is a memorandum from the files of the com- 


Mr. Hall. Yes, sir. [Reading from the memorandum:] 

Mr. Oliver acted as Chairman and opened the discussion with remarks which 
indicated that at least he, if not all of the railroad gentlemen present, were of 
the opinion that the Oil Companies were seriously disturbed by the practice that 
had recently grown up, especially in North Carolina, of dealers sending their 
trucks to the ports for Gasoline. 

Mr. Oliver presumably felt that this situation was of such serious concern to 
the Oil Industry, that we would be glad to enter into some sort of a deal with 
the carriers that would minimize the amount of reduction they would have to 
make in rail rates to meet motor-truck comi)etition. After considerable discus- 
sion, I believe they were convinced of the error of their premise, it being the 
position of the Oil Representatives that if they wished to retain the Petroleum 
tonnage, or to regain that which had already been diverted to trucks, it would 
be necessary to publish a low basis of rates and hope for satisfactory results. 

It was emphasized that there were three kinds of truck competition confront- 
ing the carriers, i. e., dealer trucking, contract trucking, and Oil Company 
trucking, all of which represented, at the present time, a substantial volume and 
one that was rapidly increasing. Thereupon Mr. Capp)s referred to a scale which 
Jie had previously distributed to various Oil Company Traffic Representatives, a 
scale starting at 40 at 5 miles, reaching 100 at 100 miles, and 350 at 250 miles, 
and asked whether that would not do the trick. He was promptly advised by 
several of those present that the scale suggested was entirely too high to meet 
any one of the three forms of truck competition, although Mr. O'Day did state 
that the scale referred to just about represented their contract trucking costs 
in South Carolina, his inference being that such a scale would more than likely 
meet the situation. 

After considerable further discussion, the meeting adjourned with the under- 
standing that the Oil Company representatives would confer in the afternoon 
for the purpose of devising and submitting to the carriers a scale which, in 
their opinion, would meet the situation. 

The writer made it clear at both sessions that we would not propose a oasis 
but would be glad to give careful consideration to any scale published by the 
carriers. A similar position was assumed by the Gulf & Pure Oil Companies. 
Mr. Flynn's position seemed to be along these same lines. 

At the afternoon session, those who favored submitting a scale, agreed upon a 
scale starting at 40 for 20 miles and advancing 10 for each 10 miles up to and 
including 250 miles. This, it will be observed, would make a rate of 120 at 100 
miles, 17^ at 150, 220 at 200, and 270 at 250 miles. These figures exceed by 
about 10 minimum trucking costs which Mr. Schad had predicated on new 3,800 
gallon units operating in North Carolina, but Mr. Schad agreed that the pro- 
posed scale would more than likely keep their traffic to the rails. Furthermore, 
this scale followed rather closely, the'C. F. A. minimum scale for short hauls 
and the Southwestern scale for the longer hauls, which many of those present 
agreed closely approximated trucking costs. 

There were two schools of thought amongst the shippers ; regarding the 
application of the scale, some contended that it should be applied universally 
throughout the South, whereas others were of the opinion that it should be 
used as a basis for publishing specific rates where necessary to meet actual or 
IMtential truck competition. 

Another feature tnat came into the j)icture was the question of carrier com- 
pletion. For example, Mr. Oliver, speaking for the Southern Railway, was 
desirous of maintaining a level of rates from Charleston, S. C, comparable with 
that established from Wilmington, North Carolina, destinations; and, while 
there seems to be justification for application of a uniform basis from the South 
Atlantic ports, it does not necessarily follow that the same level must be 
observed from Mississippi River crossings to points in the valley where truck- 
load limits are less and road conditions substantially inferior to those in the 
Carolinas, Georgia, and Flo^ida.^ The scale was submitted to Messrs. Oliver 
and Capps as what, in the best judgment of a majority of those present, was 
felt necessary to meet the situation. 

It was understood that Mr. Tilford would be instructed to notify all members 
of the Southern Executive Committee to bring their files regarding this subject 
to the meeting which is taking place at Washington this week and the railroad 
executives with whom we conferred, stated they hoped that by the early part 
of next week they could give us a definite answer. 


That, as you will observe, related to a reduction, a discussion initi- 
ated by the carriers looking to a reduction of rates in the southeastern 
zone to meet truck competition. It is quite different from the pro- 
posal which came along a little later from Mr. Pelley looking for the 
elevation of the interterritorial rates. No further action was had on 
that memorandum, so far as I can find, until the spring of 1935. 
There were further discussions and finally the railroads reduced the 
rates on movements for relatively short distances in the Southeast. 

The Chairman. Did this not refer to interterritorial rates? 

Mr. Hall. No, sir; this referred to local rates in the Southeast. 

The Chairman. Going as far as 200 miles, it didn't refer to inter- 
territorial rates? 

Mr. Hall. No ; the interterritorial rates are rates from the Missis- 
sippi Valley to the southeastern seaboard. 

The Chairman. Did it refer to interstate rates ? 

Mr. Hall. These rates could well have been interstate in some in- 
stances and intrastate in other instances. 

The Chairman. What is an interterritorial rate? 

Mr. Hall. If I understand an interterritorial rate, it is a long dis- 
tance rate from a general section of the country to another general 
section of the country. 

The Chairman. As I understood the reading of that memorandum, 
the author of the memorandum stated that the first proposal made 
by the railroads was of a schedule of rates that was too high, or rates 
that were too high to meet truck competition; do you recall that 
statement ? 

Mr. Hall. Yes, sir. 

The Chairman. So that the inference is clear that in order to elim- ' 
inate the trucks as an instrumentality for carrying petroleum prod- 
ucts, it would be necessary to offer a lower schedule of rates than 
was presented in the first exchange. 

Mr. Hall. If the chairman will permit me to take a little dissent 
at his phrase, "eliminate the trucks," I would prefer to say to equal- 
ize competition between trucks and rails a lower rate than that pro- 
posed by the railroads would be necessary. 

The Chairman. A lower rate than that proposed by the railroads 
would be necessary to meet the competition. 

Mr. Hall. For the rails to meet the competition of the trucks ; yes, 

The Chairman. Now that, of course, is what bothers me in the' 
interpretation of the Pelley memorandum, because it seems to me to 
be obvious that if the railroads were discussing with the petroleum 
companies the abandonment by the petroleum companies of the 
transportation of petroleum products by truck, it might necessarily 
be that they would offer rates which, would at least meet the truck 
rate. Now, isn't that a logical inference? 

Mr. Hall. I see nothing in the Pelley memorandum that indicates 
the railroads were going to reduce their short-haul rates to the levels 
then being quoted by the trucking companies. 

The Chairman. What consideration then was being offered to the 
petroleum companies to abandon the use of trucks by coaract or their 
own trucks for distances of more than 50 miles ? 

Mr. Hall. If I correctly interpret the' Pelley memorandum — and 
that is my only basis for expressing an opinion — it is that the other 


advantages he thought he was*oflfermg the oil companies would be 
sufficient to prompt the oil companies to erect a barrier against the 
transference of shipment from rails to motor carriers. 

The Chairman. And the only consideration he was offering, ac- 
cording to your, interpretation, was an increase of the railroad rates? 

Mr. Hall. Yes; that is one of the considerations, not all of them. 

Mr. Frank. Interterritorial rates from the Southwest to the South- 

Mr. Hall. That is right ; yes, sir. 

The Chairman. What was the first reference to the low basis of 

Mr. Hall. At the moment, Mr. Chairman, my eye doesn't fall on 
that expression. Would you like a copy or the memorandum ? 

The Chahiman. Thank you. 

This is the sentence [reading from memorandum under discus- 
sion] : 

After considerable discussion, I believe they were convinced of the error of 
their premise, it being the position of the oil representatives that if they wished 
to retain the petroleum tonnage or regain that which had already been diverted 
to trucks, it would be necessary to publish a low basis of rates and hope for 
satisfactory results. 

Mr. Hall. I think that means that the railroad proposal was not 
in the opinion of the traffic men low enough to accomplish the ob- 
jective the railroads had in mind. They had to go to a lower rate 
than that. 

The Chadrman. So that this whole discussion had to do with the 
rates for short hauls. 

Mr. Hall. Yes ; rates up to 250 or 300 miles ; up to that approxi- 
mate maximum. 

The Chairman. Two hundred fifty was, I think, the limit. 

Mr. Hall. That was the figure expressed in the Pelley memoran- 
dum. It doesn't appear here. 

The Chairman. In this discussion, then, your representative was 
conveying at all times to the railroad representatives that it was 
desirable from the point of view of the petroleum ct)mpanies to have 
lower rates in order to meet the truck competition. 

Mr. Hall. No; not at all, Mr. Chairman. Our representative was 
conveying to the railroads the thought that if the railroads wanted 
to recapture merchandise which had gone from rail to trucks, or to 
prevent the transference of further merchandise from rail to trucks, 
they would have to go lower. Our conversation was directed t6 what 
the railroads would have to do to arrest the transformance of ship- 
ping methods which was then being observed. 

The Chairman. In other words, in order to induce the petroleum 
companies to use the rails rather than trucks on these short hauls, it 
would be necessary to reduce the rates ? 

Mr. Hall. Yes; reduce the rail rates, and get them down where 
they were truly competitive with the then existing truck rates. 

The Chairman, Now it is becoming clear. But in the memoran- 
dum which Mr. Pelley addressed to your company, a memorandum 
which, on its face, was not the beginning of the discussions, he sug- 
gested to the petroleum companies an increase of territorial rates. 

Mr. Hall. Of interterritorial rates; yes, sir. 

The Chairman. Now, am I to understand that he conceived that 


increase of rates to be something that the petroleum companies would 
regard as advantageous to them? 

Mr. HAiii. That would be my interpretation of the Pelley letter; 
yes, sir. 

The Chairman. Then, would I be correct in drawing the inference 
from this testimony which you have now given that the considera- 
tion moving to the petroleum companies for an increase of territorial 

Mr. Hall (interposing). Intraterritorial. 

The Ghaieman. No, no ; I mean interterritorial. 

Mr. Hall. In a territory ; yes, sir. 

The Chairman. The consideration moving to the petroleum com- 
panies by reason of this increase of territorial rates would be that 
the petroleum companies in this area, using some other form of trans- 
portation, could charge the consumer the higher freight. Is that the 
inference to be drawn? 

Mr. Hall. I interrupted the question and it has got a bit away. 

The Chairman. I will restate it. We have this situation develop- 
ing now that your representative prepared a memorandum which you 
have withdra,wn from your office files and presented to the committee,^ 
in which he very clearly set forth that for the purpose of meeting* 
the competition of the trucks it would be necessary, for the railroads 
to reduce their rates. 

Mr. Hall. Yes, sir; in the southeastern zone. 

The Chairman. Now, here we are talking about the transportation 
of petroleum for distances up to 250 or 300 miles, and we are talking 
about meeting truck competition; that is to say, the railroads (meet- 
ing a more economical method of transporting petroleum, are we 

Mr. Hall. Yes, sir. 

The Chairman. But Mr. Pelley, in discussing the whole diiiestion 
of freight rates with a large number of petroleum companies, of 
which your company was one, having quite obviously had the matter 
under discussion for some time and having finally reached that posi- 
tion in the discussion that he reduced it to a memorandum in which 
he set forth your proposition, meaning the proposition of the petro- 
leum companyj he deemed that he was offering .the petroleum com- 
panies something when he offered to increase the interterritorial 
freight rates. 

Mr. Hall. I would accept all of the Chairman's conclusion except 
that which involves the assumption that there had been discussions 
between Mr. Pelley and the railroads, a subject we have been over. 
I know of no such discussions. 

The Chairman. But if you won't accept my inference, let me 
explain to you why I draw the inference and then perhaps without 
any more knowledge than I have of this matter you may draw the 
same inference, because I get it only from the language. 

He says [reading from "Exhibit No. 1269"] : 

Based upon discussion with Mr. Cleveland, it is my understanding that in 
view of certain conditions to be later referred to herein, you have stated that 
you * * * 

That is the past tense, is it not? 
Mr. Hall. Yes, sir. 


The Chairman (continuing) : 

* * • -you have stated that in the Southeast you will discontinue trucking 
from your water terminals or refineries to the interior for distances in excess 
of forty to fifty miles — 

And so forth. 

Now, Mr. Hall, am I not justified in making the inference from 
that that he is referring to previous conferences and negotiations? 

Mr. Hall. Judging from the face of the letter alone^ that may 
be so. ,, 

The Chairman. Very good. Now,' do you know of anything you 
could relate to me which would justify me in drawing any other 
inference ? 

Mr. Hall. I know of no discussions on the, subject, Mr. Chairman. 

The Chairman. Then, you and I miist both accept the plain im- 
plication of the English language here, that Mr. Pelley was referring 
to previous discussions and the previous offer. 

Mr. Hall. With much respect, I am not willing to accept that, 
because, if I understand the testimony here, the letter was sent to 
12 or 13 petroleum companies. I dont know what Mr. Pelley had 
in mind. I know of no conference within my own company. 

The Chairman. I acknowledge that, sir. You have testified here 
that you have no knowledge of any conference in which your com- ' 
pany took part. But I am merely asking for the interpretation of 
a lawyer who has reached the distinction of being the chief counsel 
of the Standard Oil of New Jersey as to the inference that the chair- 
man of this committee is authorized to draw from this language. 

Now, let me read the language again in "Exhibit No. 1269" : 

Based upon discussion w^th Mr. Cleveland, it is my understanding that in 
view of certain conditions to be later referred to herein, you have stated that 
in the Southeast you will discontinue trucking from your water terminals or 

Mr. Hall, was he or was he not, in your opinion, referring to a 
previous conference or conversation or communication of some kind ? 
. Mr. Hall. I think he must have — he seems to have been referring 
to a previous conversation. With whom I do not know. 

The Chairman. Of course. That is my conclusion and it i& your 
conclusion. It took a long time for us to get down to that point. 

All right. Now, then, we are also agreed upon this conclusion, that 
your representative who drafted this memorandum told the railroad 
companies that if they were to meet truck competition they .would 
have. to reduce their rates. 

Mr. Hall. Yes, sir. 

The Chairman. But Mr." Pelley, in this other memorandum, con- 
ceived it to be of some advantage to the petroleum companies to in- 
crease their rates. Now, will you tell me why it wasJ:hat Mr. Pelley 
had the notion that though clearly from your representative's memo- 
randum it was desirable, in order to -^et the cheap transportation of 
trucks, to reduce rates on short hauls, it could possibly be a desirable 
thing for the petroleum companies to increase the rates of transporta- 
tion on interterritorial hauls? 

Mr. Hall. Mr. Pelley seems, by his letter of January 17, 1935, to 
have reached the conclusion in his own mind, by what route I do not 
know, that the oil companies to whom he addressed the memorandum 


would derive some advantage from the various conditions that he 
proposed, which would prompt them to do what they could to stop 
the transference of movements of petroleum from the rails to motor 

The Chairman. Now, in your judgment, as the chief counsel of this 
very important petroleum company, what possible idea could he have ^ 
had in his mind? 

Mr. HaIiL. Why, I think it is very clear that he had in his mind 
that it would benefit some of these companies to have higher freight 
rates from points west of the Mississippi River into the southeastern 
territory than to have the existing freight rates. 

The Chairman. Why would it be of benefit to a petroleum company 
which was engaged in transporting petroleum products to the con- 
sumer and trying to sell those products at the lowest possible price 
to the consumer? Why would it be beneficial to such a company to 
increase the cost of transportation. 

Mr. Hall. May I have that question again? I'm sorry. 

(The reporter reread thef question.) 

Mr. Hall. Mr. Chairman, I have previously testified that I have 
been unable to see any substantial, advantage to my own company in. 
that respect. I don't want to attempt to testify with respect to com- 
panies whose operations and views I am not familiar. 

The Chairman. Yes; I can understand your disinclination to do 
that, but this is a committee which is striving its best,' and very la- 
boriously, to understand this industry for the Tight that it may throw 
upon the great problems that are before the country. Now, you are 
thoroughly 'amiliar with the oil business; 

Mr. Haul. No; I am sorry I am not. I wisn I were. 

The Chairman. Well, it would be reasonable to assume — - 

Mr. Hall (interposing). Thank you. 

The Chairman. That as chief counsel for this company, you are 
at least reasonably familiar with the business. Would you be willing 
to express an opinion, without mentioning any other company, how 
an increase of freight rates would be beneficial to such a company 
operating in this territory? 

Mr. hIll. No, Mr. Chairman ; I think I ought not to express such 
an opinion. 

The Chairman. I will tell you why I ask you the question, Mr. 
i^all; because the testimony has been given here by those who have 
been criticizing the operation of the oil industry that in the inte- 
grated company great profits are made in production, and great 
profits are made m transportation, and losses are incurred in mar- 
ketingj and that by reason of the profits which are made in trans- 
portation, it is possible for companies like yours to sell to the con- 
sumer at a loss and, selling to the consumer at a loss, to drive the 
independent retailer out of business, and thereby interfere ^/ith free, 
private enterprise, small business. So here comes a situation in 
which you yourseli have testified that Mr. Pelley, of the Association 
of American Railroads, a very important position and a very dis- 
tinguished and able gentleman, had the idea that it would be bene- 
ficial to the petroleum companies to increase the freight rates. In 
other words, to increase the cost of transportation of petroleum 
products paid for by the consumer. Now, with that explanation of 
the reason for my question, do you care to offer any opinion? 


Mr. Hall. Mr. Chairman, I am not an economist, I am not a 
marketer, I am not a general executive, I am a lawyer. I think I 
would be going far beyond my lield to embark on the subject you 
have opened. 

The Chairman. Mr. Hall, this isn't a question for economists, it is 
not a question for lawyers, it is not a question for industrial execu- 
tives or for politicians, if you please. This is a question for com- 
mon, ordinary citizens. And a lot of these common, ordinary citi- 
zens have ^.ppeared before this committee with their point of view, 
and I am asking for your point of view, as a citizen, not as a lawyer. 

Mr. Hall. I think one has to have possession of accurate facts to 
answer your question. I haven't those facts in mind, and I dislike 
to draw on any imagination I may have, and I beg the committee's 

■ The Chairman. Of course, I am not asking you to draw on your 
imagination. I wouldn't think of doing that. I merely had the 
idea that since you have been associated Avith this company over so 
long a period, you were probably sufficiently familiar with the opera- 
tion of the oil business to give an opinion that would be of value 
to the committee. Now, if you don't care to give it, that is all right. 

Mr. Hall. I appreciate the compliment of the chairman's observa- 
tions, but I still think I ought not to venture an opinion on the 

The Chairman. Very well ; I shan't pursue the matter any further. 

Are there any other questions? 

Mr. Cox. I had a few questions that I would like to ask, if I may, 
Mr. Chairman. 

The Chairman. Mr. Cox. 

Mr. Cox. Mr. Hall, as I. understand your testimony, after the end 
of March, in 1935, there were some conferences between representatives 
of the railroads and representatives of the oil companies at which 
rates within the Southeastern territory were discussed. Is that 
correct ? 

Mr. Halt.. Yes, sir. 

Mr. Cox. And I have been assuming, and I ask you now to tell me 
whether it is a fair assumption, that in your opinion there is nothing 
illegal in that kind of conference, where the representatives of the oil 
companies and the representatives of the railways bargain collectively 
about rates ? - 

Mr. Hall. That is my firm ponclusion. 

Mr. Cox. So that when you reached the conclusion that this pro- 
posal in the Pelley memorandum was illegal, it was not because the 
memorandum envisaged an agreement between the parties thereto as 
to rates, but because of certain other things. 

Mr. Hall. Yes, sir. 

Mr. Cox. And these forbidden things, if we may call them such, 
were such things as discontinuing trucking, and reformation of leases, 
and the discouragement of leases for filling-station operations, is that 

Mr. Hall. Yes, sir. 

Mr. Cox. Now, would it also be fair to assume that in your opin- 
ion, Mr. Hall, there is nothing illegal in any of those things per se. 
it is only the way in which it was proposed that they be accom- 
plished in this Pelley memorandum? Is that correct? 

124491 — 40— pt. 16, sec. 3 19 


Mr. Haul. At the time I considered them in the way they were 
proposed ; I didn't consider them per se. 

Mr. Cox. Do you care to express an opinion now as to whether or 
not it would be illegal for an individual oil company to discontinue 
trucking from its terminals? 

Mr. Haul. I think I would want to give the matter careful con- 
sideration before I expressed an opinion. 

Mr. Cox. You don't feel that you can express an opinion on that? 

Mr. Hall. I prefer not to express an offhand opinion. 

Mr. Cox. Does the Standard Oil Co. of New Jersey ever discon- 
tinue trucking from any of its terminals and use railroad transporta- 
tion instead? 

Mr. Hall. Not by agreement with anybody. 

Mr. Cox. Does it do it of its own volition ? 

Mr. Hall. When it is economical for it to do so I presume it does. 
I have no instance in mind. 

Mr. Cox. Have you ever considered whether it is le^al 2 

Mr. Hall. For the Standard Oil to take an action in its own un- 
controlled judgment without agreement with anybody ? 

Mr, Cox. That is what I have been asking. 

Mr. Hall. I haven't considered it. 

Mr. Cox. Would you care to express an opinion on that? 

Mr. Hall. I see nothing unlawful in that. 

Mr. Cox. If it isn't unlawful it wouldn't be made unlawful merely 
by reason of the fact that some other oil company might ^t the same 
time discontinue delivery by truck from its terminal ? ^ 

Mr. Hall. It is a wholly independent action and I thin^I would 
agree with it. ^ '^ 

Mr. Cox. And similarly by wholly independent action ooth. com- 
panies might adopt the policy of discouraging filling- statibn leases, 
might they not? 

Mr. Hall. I would think so, wholly independently; I emphasize 
that in response to every one of your questions. 

Mr. Cox. Yes; I understand that. Now you don't -think, do you, 
that the company's capacity to act wholly independently in 1936 and 
1937 was materially impaired by this Pelley memorandum, do you? 

Mr. Hall. No, sir. 

Mr. Cox. So that a number of oil companies, well, all 12 or 
13 of them, to whom this memorandum was addressed, in your opin- 
ion might have discontinued trucking or discouraged leases for fiUmg- 
station operations in 1936 and '37 without violating the law ? 

Mr. Hall. I think so. ; 

Mr. Cox. And there wouldn't he any violation of the law unless you 
could show that there were some connection between that action and 
this Pelley memorandum. Is that correct ? 

Mr. Hall. Oh, I could imagine other circumstances under which 
there might be a violation of law, but assuming the factual situation 
you build up 

Mr. Cox (interposing). Assuming that factual situation, is your 
answer "yes"? Is that correct? 

Mr. Hall. If I understand correctly your question you are asking 
if I could see anything violating the law if the petroleum companies, 
several petroleum companies, acted entirely independently in 1936 and 


1937 and reached a decision to discontinue the movement of mer- 
chandise by trucks and transfer it to rails. My answer is "no," and 
my answer is that the existence of the Pelley memorandum would not 
change my view. 

Mr. Cox. Now what tests do you apply for determining whether or 
not they acted independently ? 

Mr. HAiiL. Acting by themselves, sole judgment, unpersuaded by 
any joint action or joint consideration. 

Mr. Cox. Would it be fair to say that what you are speaking of 
there is the state of mind of the men in the companies that make 
the decisions? 

Mr. Hall. I don't know that I get your question exactly, Mr. Cox. 

Mr. Cox. I thought it was .perfectly clear. Will the reporter read 
the question? 

(The reporter reread the immediately preceding question : "Would 
it be fair to say that what you are speaking of there is the state of 
mind of the men in the companies that make the decisions?") 

Mr. Hali.. I still am perplexed by the question, Mr. Cox. 

Mr. Cox. I will withdraw it and put it this way. Will you read to 
Mr. Hall his last answer? 

(The reporter read the following answer of the witness: "Acting 
by themselves, sole judgment, unpersuaded by any joint action or joint 

Mr. Cox. I ask you if in that answer you weren't referring to a state 
of mind when you spoke of "sole judgment." 

Mr. Hall. I think a state of mind is part of it; yes, sir. 

Mr. Cox. What else? 

Mr. Hall. The existence of any agreements, 

Mr. Cox. Then we come to this. So long as there were no external 
indications of the sort contained in the Pelley memorandum, the test 
is wholly subjective, is it not? 

Mr. Hall. I am not sufc I know the use that you make of the word 

Mr. Cox. I will put it the other way. Excluding such eirtemal 
manifestations as the Pelley memorandum, it would be a sole ques- 
tion of the state of mind of the officials of the oil companies, would 
it not? 

Mr. Hall, I think so. 

Mr. Cox. Do you know of any way in which that can be ascer- 
tained except by the process which we have been going through with 
you this afternoon? 

Mr. Hall. Yes ; I think there are other ways. 

Mr. Cox. What other? 

Mr. Hall. By the examination of people concerned. 

Mr. Cox. Do you mean by going through the same process with 
someone else? 

Mr. Hall. Not this process ; the examination of, participants in the 
various appearances we have been discussing this afternoon. 

Mr. Cox. But so far as the oil company officials are concerned, it 
requires an examination into their state of mind, doesn't it? 

Mr. Hall. Yes. 

Mr. Cox. And that is the only way you can find out, is it not, 
whether or not it would be violation of laws. 


Mr. Haix. You and I are having some difficulty understanding one 
another. At least lam having some difficulty understanding you, Mr. 

Mr. Cox. I am content. 

The Chairman. Did you have anything else to add? 

Mr. Hall. ITo, Mr. Chairman. 

(The witness, Mr. Hall, was excused.) 

The Chairman. Did Mr. Klein want to be heard this evening? 

Mr. KxEiN (approaching the committee table). Mr. Chairman, if 
you please. 

The Chairman. Do you solemnly swear that the testimony you are 
about to give in these proceedings shall be the truth, the whole truth, 
and nothing but the truth, so help you God? 

Mr. Klein. I do. 


The Chairman. Will you give your name to the reporter ? 

Mr. Klein. My name is Harry T. Klein. I have been associated 
with the legal department of the Texas Co. since 1921. I have been 
general counsel to that company since 1925. 

The Chairman. Now, Mr. Klein, it is quarter of six. Some mem- 
bers of the committee have indicated a desire not to have a session 
tomorrow and we have, I am afraid, a very full week next week and 
we are hoping to bring this study to a conclusion by that time. How 
long is the statement that you would like to make ? 

Mr. Klein. I hope to finish within 10 minutes. 

The Chairman. I will hope that the members of the. committee will 
not pursue the questioning too long. Of course, we do want to 
illuminate the subject. 

Mr. Klein. I will go right into our correspondence relating to 
this letter of Mr. Pelley of January 17, 1935. Prior to the time 
that this letter was referred to me by our president, Mr. Rodgers, I 
had no knowledge of any prior negotiations with the railroads. 

The Chairman. * You had no knowledge. Did anybody have any 
knowledge of it in your company ? 

Mr. Klein. They must have had, judging from the facts that will 
be disclosed by this correspondence. Personally I had none. 

The Chairman. You feel that I was justified in my inference that 
this memorandum of Mr. Pelley's shows on its face that it was 
.referring to previous coi^f erences or communications of some kind? 

Mr. Klein. I think it is quite evident that there were some prior 
negotiations, but I don't think that they related to the subject mat- 
ter that Mr. Pelley actually put into his letter of January 17 and that 
I believe will be disclosed by what goes on. 

This letter of January 17 is already in the record so, unless 
the committee prefers, I will not offer our copy of it. 

The Chairman. Oh, no. Portions of it have been read into the 
record several times now. 

Mr. KxEiN. The next letter from the files of the Texas Co. is a 
carbon of a letter from Mr. Rodgers, president of the Texas Co., to 


Mr. J. J. Pelley, president, Association of American Railroads, 
dated January 19. It says [reading from "Exhibit No. 1285"] : 

I have your letter of January 17 with reference to my recent discussion with 
Mr. Cleveland. In principle, we are sympathetic with what Mr. Cleveland has 
been trying to work out, but I think there is a possibility there is some mis- 
understanding in reference to some of the poinf-s raised in our recent conference. 

Mr. Charles Ervin, our TraflSc Manager, expects to see Mr. Cleveland in 
Washington, the first part of next week, on some other matters, and I have 
asked him to discuss this subject with Mr. Cleveland, and in case there has 
been a misunderstanding, to clear it up. 

I would like to offer that for tne record, although it is not the 

The Chairman. It may be received. 

(The letter referred to was marked "Exhibit No. 1285" and is 
included in the appendix on p. 9328.) 

Mr. Klein. The next letter is an original letter from Mr. Pelley, 
dated January 23, 1935. He says [reading from "Exhibit No. 
1286"] : 

I want to thank you for your kind letter of the 19tJi. Of course, neither Mr. 
Cleveland nor I desired any misunderstanding with reference to the matter 
regarding which I wrote you under date of January 17th. Mr. Cleveland 
advises me that he had a long interview with Mr. Ervin yesterday, and that he 
has given Mr. Ervin full information in regard to all questions that he had 
in mind. He is of the opinion that with the explanations made, Mr. Ervin is 
fully satisfied. I regret that I was not in Washington when Mr. Ervin called, 
as I should have been most pleased to have met him ahd to have participated 
in the conference. 

I would like to offer that letter. 

The Chairman. It may be received. 

(The letter referred to was "Exhibit No. 1286" and is included in 
the appendix on p. 9328.) 

Mr. KxEiN. About that time Mr. Kodgers consulted me. He said 
he had some doubts about Mr. Pelley's letter of January 17 and he 
asked my opinion regarding it. 

The Chairman. Was that before or after he wrote the letter to Mr. 

?Ir. Klein. I am under the impre.ssion it was after that letter but 
before this letter that I am now going to read. I told, Mr. Rodgers 
that in my opinion, if the agreement set out in Mr. Pelley's proposal 
was consummated, that it would constitute violation of the law, and 
T advised against the Texas Co. entering into any such arrangement. 
So on January 29, Mr. Rodgers wrote Mr. Pelley [reading from 
"Exhibit No. 1287"] : 

Receipt is acknowledged of your letter of January 23. I have discussed the 
subject matter of 3'our letter of January 17 with our general counsel. He 
advises that inasmuch as the practical effect of the arrangement proposed in 
your letter is an agreement among the major competitive oil companies to forego 
certain methods of competition, before we would be justified in finally agreeing 
to the arrangement it would be advisable to reduce the details to writing and 
submit the proposal to the National Oil Administrator for consideration in ac- 
cordance with the provisions of Section 4-A of the National Industrial Recovery 
Act. If you are in accord with the effort being made to work out the details 
of the arrangement on this condition, I will be glad to have the matter pursued 
further bv rerresentatives of our company. 


I would like to offer that for the record. 

The Chairman. It may be received. 

(The letter referred to was marked "Exhibit No. 1287" and is 
included in the appendix on p. 9328.) 

Mr. Klein. The next letter received was an original letter from 
Mr. Pelley to Mr. Rodgers, dated January 31. [Reading from "Ex- 
hibit No. 1288" :] 

This will acknowledge receipt of your letter of January 29. The questions 
raised by you will be given prompt consideration. I would like to suggest, sub- 
ject to your approval, that Mr. Fort, our general solicitor, and Mr. Cleveland 
have a conference with your general counsel on Thursday or Friday, February 
7 or 8, whichever will best "feuit his convenience, in order to discuss the matter 
and ascertain from him what it is he would like to have us do. It is our 
thought that the matter can be handled much better by conference than is 
possible through correspondence. 

I would like to offer that letter for the record. 

The Chairman. It may be received. 

(The letter referred to was marked "Exhibit No. 1288" and in- 
cluded in the appendix on p. 9329.) 

The Chairman. That is a letter from Mr Pelley. 

Mr. Klein. Original letter from Mr. Pelley,^ dated January 31. 

The next letter is a letter from Mr. Rodgers to Mr. Pelley [reading 
from "Exhibit No. 1289"] : 

I have your letter of January 31. Mr. H. T. Klein, vice president and gen- 
eral counsel, will be very glad to discuss this subject M'ith Messrs. Fort and 
Cleveland on either next Thursday or Friday. Inasmuch as I shall be out of 
town next week I suggest that these gentlemen communicate with Colonel Klein 
direct and arrange a convenient time. 

I would like to offer that letter for the record. 

The Chairman. The letter may be received. All of these letters 
may be received. 

(The letter referred to was marked "Exhibit No. 1289," and is 
included in the appendix on p. 9329.) 

Mr. Klein. The next development was a telegram I received from 
Mr. A. F. Cleveland, dated February 4 [reading from "Exhibit No. 
1290"] : 

Please refer to Mr. Rogers' * letter, February first, to President Pelley. Would 
it be convenient to you to see Mr. Fort and the undersigned your oflSce 
ten thirty Thursday morning, February seventh? 

(Signed) A. F. Cleveland. 

I would like to offer that. 

(The telegram referred to was marked "Exhibit No. 1290," and is 
included in the appendix on p. 9329.) 

Mr. Klein. I telegraphed in reply under date of February 4, to Mr. 
Cleveland [reading from "Exhibit No. 1291"] : 

Your telegram, will be glad to see you and Mr. Fort in my office ten thirty 
Thursday morning, February seventh. 

I have on this telegram some shorthand notes of mine, to this 

Conference in office today with Messrs. Cleveland, Fort, Hall [the previous 
witness], Phelps, Macatee [one of our traffic men], and myself. Hall and 
Fort are to get together and submit the matter to Fahy for consideration. 

Name misspelled in original document. Should have been R-o-d-g-e-r-s. 


Mr. Fahy was counsel, I think, for the Petoleum Administration 
Board. I think he was the chairman of that board. 

I would like to offer that telegram and these shorthand notes. 

(The telegram referred to was marked "Exhibit No. 1291," and 
is included in the appendix on p. 9329.) 

The Chaikman. Mr. Klein, I notice you are stripping your file. 
Do you want these originals back ? 

Mr. Klein. Whatever the committee wishes. 

The Chabrman. They will all be copied and we can return them 
to you. 

Mr. Klein. We would like to have them back. 

The last development in our file is under date of March 25, 1935. 
I might say that up until last week, after this letter I refer to next 
was written, I heard nothing further of this proposal in Mr. 
Pelley's letter until the matter was brought up here by Mr. Orvis, 
and I don't know personally that the matter ever was submitted 
here at Washington, although I understood in talking to Mr. Hall 
that it was discussed with, I think, Mr. Fahy. 

The Chairman. When did you get that understanding from Mr. 

Mr. Klein. I talked to him yesterday about the subject and he 
told me he is under the impression that he came down, he wasn't 
certain, and that it was discussed with Mr. Ickes, but I am quite 
sure it was discussed with Mr. Ickes — I beg your pardon, Mr. Fahy. 

Mr. Rodgers wrote Mr, Pelley under date of March 25, 1935 [read- 
ing from "Exhibit No. 1292"] : 

Referring further to your letter of January 17 and my letter to you of 
January 29, regarding transportation of petroleum products in the southeastern 
states : 

Conferences at which the subject matter of these letters was fully discussed 
have been held by Messrs. Cleveland, Fort, and Klein. In view of the legal 
difl5culties involved, it is my opinion that it will not be practicable for us to 
carry out the suggestions contained in your letter of January 17th, and I there- 
fore suggest that the matter be dropped. 

(The letter referred to was marked "Exhibit No. 1292" and is in- 
cluded in the appendix on p. 9330.) 

Mr. Klein. There is no further development in the Texas Co. 
legal file, and personally, as I say, I have never heard anything of it 
after that letter was written. 

You notice that letter directs that the file be closed. 

The Chairman. And is the file closed ? 

Mr. I^JLEiN. The legal-department file is closed. We have traffic 
files in the southeastern territory just like we have all over the coun- 
try, where we are endeavoring all the while to get reductions in 
freight rates. 

The Chairman. Wliat was the subject of the conference of which 
you made the notation in shorthand on the telegram that you have 
just offered for the record? 

Mr. Klein. The legality of the proposed arrangement: ^_ 

Conference in office today with Messrs. Cleveland, Fort, Hall, Phelps, Macatoe, 
and myself. Hall and Fort are to get together and submit matter to Fahy 
for consideration. 

That was a memorandum made on the day of the conference. 
The Chairman. How long did the conference last ? 


Mr. Klein. Well, I haven't any distinct recollection, but I think 
it was rather short. Both Mr. Hall and I were pretty well convinced 
that we couldn't accept the proposal unless it had the approval 
of the Oil Administrator acting for the President. 

The CHArRMAN". Well, you recall the correspondence which Mr. 
Hall put in the record. 

Mr. Klein. I do. 

The Chairman. The letter from Mr. Hall to Mr. Pelley, expressing 
doubt of the legality of the proposal and expressing a question as to 
whether or not the matter had been discussed by the counsel for the 
Association of American Railroads. 

Mr. Klein. I do. 

The Chairman. And you recall Mr. Pelley's response that the 
matter had been discussed by the counsel. Do you recall that? 

Mr. Klein. I didn't recall that. 

The Chairman. That was the answer. 

Mr. Klein. I assume that was the answer. 

The Chairman^ And Mr. Fort was that counsel; was he not? 

Mr. Klein. Mr. Fort came to New York and discussed it with the 
two of us. 

The Chairman. And what was his opinion as expressed to you in 
the conference? 

Mr. Klein. It is very indistinct, but my recollection is that he had 
some doubt whether or not our position was sound, that the arrange- 
ment would be an illegal one, and that we were probably borrowing 
trouble in insisting that it should be approved by the Oil Administra- 

The Chairman. Did he try to persuade you that your view was 
unsound ? 

Mr. Klein. I don't think so ; but that is a mere impression on my 
part. I may be mistaken as to that. 

The Chairman. And no other subject was discussed except this 
question of the legality? 

Mr. Klein. Not that I recall at this time. 

The Chairman. And your recollection now is practically confined 
to the expression of opinion by yourself and Mr. Hall and does not 
include the expression of opinion by Mr. Fort and Mr. Cleveland ? 

Mr. Klein. That is my impression. 

Mr. O'Connell. Would it be fair to infer from what you have told 
us that your company thought the plan was a desirable one from the 
point of view of your company, hut that you were impeded by the 
existing legislation from carrying that out? 

Mr. Klein. Well, I am not a traffic expert, Mr. O'Connell, but I am 
under the impression that our people did favor a redjiction, of south- 
eastern rates. Some of the companies had installed water transpor- 
tation, some had put in motor transportation, and I have in my nle a 
study of a proposed pipe line. 

Mr. O'Connell. But as I understand it, if I may just interrupt, the 
thing which was generally under discussion at the meeting at your 
office was the memorandum of Mr. Pelley of January 17. 

Mr. Klein. The legality of it, but not the details. 

Mr. O'Connell. At least it was being considered seriously enough 
so that it was taken up with the authorities in Washington. 


Mr. Klein. I think our companies were seriously considering it; 

Mr. O'CoNNELL. The plan as indicated in the memorandum of Mr. 

Mr. Klein. That is true. 

Mr. Frank. That plan contemplated, as I understand it, an increase 
of the interterritorial rates. 

Mr. Klein. An increase in the interterritorial rates, but also I think 
it contemplated reductions of rates along the seashore and probably 
up from the Gulf. 

The Chaikman. That was not set forth in the Pelley memorandum. 

Mr. Klein. No; but that is the subject matter of some of the memo- 
randa that have been introduced here today. 

The Chairman. Your first statement just now with respect to the 
attitude of your traffic department, if I miderstood it correctly, was 
.that your traffic department felt that a reduction of rates would be 

Mr. Klein. I think that is true certainly along the Atlantic coast 
to meet truck competition, and probably from the Gulf north. 

The Chairman. Did your traffic department consider that an in- 
crease of the interterritorial freight rates would be beneficial to the 
Texas Co.? 

Mr. Klein. I didn't discuss that with our traffic man, and I couldn't 
,give a definite answer on that. 

The Chairman. Do you agree with me that this memorandum of 
Mr. Pelley, the memorandum of January 17, would seem to indicate 
that he considered that ah increase of the interterritorial rates would 
be advantageous to the companies to whom he was offering it? 

Mr. Klein. I have my private opinion on that. 

The Chairman. Would you be good enough to give it to us ? 

Mr. Klein. I couldn't say whether it is sound from our company's 
policy or not, but if I recall correctly, in 1934 east Texas was running:, 
wild. There was a lot of "hot oil" being produced in that neighbor 
hood. The Connally Act was being agitated and a lot of this "ho; 
oil" — you understand this was during the code days when they wer^' 
trying to clear up a lot of difficulties. The refiners in east Texas 
who would buy legitimate oil couldn't compete with these little fel- 
lows who bought "hot oil" and would ship it over into these terri- 
tories, so this is merely my private opinion : I think that the purpose 
at that time was to take care of the situation until the Connally Act 
could be passed. 

The Chairman. In what way? 

Mr. Klein. By equalizing the price at which these little fellows 
who were selling "hot oil" m east Texas would be able to distribute 
oil in the southeastern part of the country. 

The Chairman. In other words, the plan was to increase the cost 
of transportation to the little fellows on the supposition that th^y 
were handling "hot oil" ? 

Mr. Klein. These men who were handling "hot oil" — that is my 
private opinion. 

The Chairman. But of course it would operate to the disadvantage 
of a little fellow who was handling legitimate oil just as well as 
though he were handling "hot oil." 


Mr. KiiEiN. Well, there were a lot of compensating circumstances, 
Mr. Chairman, for the little fellow under the code who was handling 
legitimate oil. 

The Chairman. Are there any other questions? 

Mr. O'CoNNEiiL. I would like to know what some of them were. 

Mr. Klein. Well, at the request of the oil administrator, some of 
the companies bought oil from the little independent refiners who 
were buying legitimate oil. That was one compensating factor. 

Mr. O'CoNNELL. You mean compensation which was in effect de- 
rived from the majors by voluntarily buying their oil when they 
didn't have to buy it ? 

Mr. Klein. That is right. 

Mr. O'CoNNELL. I take it the Texas Co. has no particular occasion 
to use rail transportation from East Texas or the Texas area. 

Mr. Klein. We have pipe lines from East Texas into Port Arthur 
and into Houston and we use relatively little rail transportation, I 
think, in that section. 

Mr. O'CoNNELL. So to the extent that your company might be 
interested in increasing the inter territorial rates, it was increasing 
the rates for a form of transportation not used by your company 
but used by your competitors. 

Mr. Klein. I don't think we were so much interested, Mr. O'Con- 
nell, in that question. I think what we were interested in was a 
reduction of rates. It has been the policy of our company as long 
as I can remember to get as cheap a transportation rate, with the 
idea that we can get our product to -the consumer at the cheapest 
possible price. For instance, when you consider that very frequently 
the transportation cost from refinery to service station is in excess of 
the tank-car price of the product at the refinery, you can appreciate 
that it is quite an item. 

Mr. Henderson. Mr. Klein, you have relatively little rail trans- 
portation. In your billings do you add the all-rail freight? 

Mr. Klein. Mr. Henderson, I really couldn't tell you that. I don't 
know what our practice is. 

Mr. Henderson. It seems to me it is rather important to know. 

Mr. Klein. We have water terminals, I think, at New Orleans and 

Mr. Henderson. Don't you add the freight rate from group 3 to 
Ealeigh? Isn't that your practice? 

Mr. Klein. I think our price is set more by competition in the' 
local area rather than at basing point and adding transportation. 

Mr. Henderson. You do in some cases add the all-rail regardless 
of what the method of transportation was ? 

Mr. Klein. That may be true in certain cases. I think, though, 
in most instances we have to meet competition. 

Mr. Frank. You haven't been consulted as a lawyer about the 
legality of any such device? 

Mr. Kjlein. No. 
' The Chairman. But your testimony is that the Texas Co. with- 
drew from all consideration of this plan and didn't participate. 

Mr. Klein. And to my knowledge we never tried directly or in- 
directly to carry out the provisions of that Pelley letter. 

The Chairman. Do yo,u know whether or not it was ever carried 
out by anybody else? 


Mr. Klein. No ; I think not. I do know this generally. The trans- 
portation rates in the Southeast were probably the highest in this 
country, and there have been two, probably three, reductions in the 
rail rates since that time. I think one is pending now, if I am not 

Mr. O'CoNNELL. Were those interterritorial rate reductions? 

Mr. Klein. I couldn't say as to that. I just know generally. 

Mr. O'CoNNELL. The particular reductions that we heard about 
this afternoon were what you might call local rates ? 

Mr. Klein. Well, I might say that there is a difference in the posi- 
tion of the Standard Co. and the Texas Co. They have certain local 
competitive advantages by reason of the location of their plants and 
we have certain, advantages by reason of the location of our plants, 
and I think you will find that in the discussion between Mr. Stephens, 
who was the traffic manager of the Standard of Kentucky, and Mr. 
Ervin, who is our traffic manager. 

I think I can say as a general rule that the companies prefer prac- 
tically all the time a reduction of freight rates, but occasionally here 
and there, there are local instances where one company has a com- 
petitive advantage and in such cases is apt to oppose a reduction of 

Mr. O'CoNNELL. Would you say that in general your company 
would support and be in favor of a reduction in freight rates in a 
territory in which you didn't use rail? That is, take the situation 
as it exists in the Southeast, you don't ship by rail from the South, 

Mr. Klein. We ship to our water points by water and then we ship 
by rail or truck to our inland points. 

Mr. O'Connell, Yes; but do you know whether your company 
has ever made any attempt to get the interterritorial rates from the 
Southwest to the Southeast reduced or raised ? 

Mr. Klein. I could not say. 

Mr. O'Connell. That is the type of transportation which you don't 
use but on which your prices are in same cases based, I take it. 

Mr. Klein. Tliat is true. I was going to volunteer something, but 
I won't. 

The Chairman. Mr. Cox, do you care to ask any questions? 

Mr. Cox. No. 

The Chairman. Are there any other questions? 

The statement of Mr. Orvis, t think will be admitted to the record. 

(The prepared statement of Eugene L. Orvis was marked "Ex- 
hibit No. 1293" and is included in the appendix on p. 9330.) 

The Chairman. If there are no further questions, Mr. Klein, you 
will be excused. We are grateful to you for your statement. 

The committee will stand in recess until Monday morning at 10 : 15, 
when it will assemble in room 357. A representative of the Federal 
Trade Commission will appear in the morning. In the afternoon 
Mr. Schuh, who was mentioned in the testimony here during the week 
and who is a representative of one of the retailers' associations, will 
appear in the afternoon. 

The committee will now stand in recess. 

(Whereupon, at 6 : 10 p. m., the committee adjourned until Mon- 
day, October 16, 1939, at 10: 15 a. m.) 



United States Senate, 
Temporary National Economic CoMMrrrEE, 

Washington^ D. G. 

The committee met at 10 : 30 a. m,, pursuant to adjournment on 
Friday, October 13, 1939, in Koom 357, Senate Office Building, Mr. 
Joseph J. O'Connell, Jr., Special Assistant to the General Counsel, 
Department Of the Treasury, presiding. 

Present: Kepresentatives Sumners (vice chairman) and Williams; 
Messrs. Davis, Ferguson, O'Connell, and Brackett. 

Present also: Representative Mapes (Michigan) ; Clarence Avildsen 
and Robert McCoimell, representing the Department of Commerce; 
Quinn Shaughnessy, representing the Securities and Exchange Com- 
mission; Willis Ballinger, Director of Studies and Economic Adviser 
to the Federal Trade Commission; William Kelley, Chief Counsel; 
William H. England, Assistant Chief Economist ; Harry Babcock and 
George ^cannell, aittorneyis, Federal Trade Commission ; W. B. 
Watson Snyder and F. E. Berquist, Special Assistants to the Attorney 
General, Department of Justice. 

Acting Chairman O'Connell. The hearing will please come to 
order. Mr. Ballinger, are you ready to proceed? 



Mr. Ballinger. Mr. Chairman, the Federal Trade Commission was 
requested by the committee to prepare a report on marketing prac- 
tices in the petroleum industry. That report has been prepared and is 
ready for submission to the committee . We wish to put a witness on 
to summarize the report and to answer any questions that the com- 
mittee may desire to be put. 

Before requesting that the witness be properly sworn and qualified, 
the Commission requests that this report be printed in the record in 
full, but without the exhibits.^ The exhibits are very voluminous and 
would put the committee to considerable expense, and the Commis- 
sion will be very much satisfied if the report is printed in full. 

Acting Chairman O'Connell. Without exception it is so ordered. 
Will you give a copy of the report to the reporter, so that it might 
be printed in full? 

(The Federal Trade Commission report referred to was marked 
"Exhibit No. 1294" and is included in the appendix on p. 9347.) 

iThe exhibits, introduced infra, p. 9143, as "Erliibit No. 1295" are on file with the 



Mr. Ballinger, We ask that Mr. Horton be sworn. 

Acting Chairman O'Connell. Do you solemnly swear the testi- 
mony you are about to give in this proceeding will be the truth, the 
whole truth, and nothing but the truth so help you God ? 

Mr. HoRTON-. I do. 


Mr. Ballinger. Will you state your name for the reporter? 

Mr. HoRTON. James A. Horton, Chief Examiner, Federal Trade 

Mr. Ballinger. You are a lawyer? 

Mr. Horton. Yes. 

Mr. Ballinger. How many years have you been in the office of 
chief examiner? 

Mr. Horton. Five years. 

Mr. Ballinger. How long have you been with the Federal Trade 
Commission ? 

Mr. Horton. Since March 1921. 

Mr. Ballinger. What did you do before that, practice law? 

Mr. Horton. I was associated with the Post Office Department in 
the enforcement of the postal provisions of the Espionage and Trad- 
ing With the Enemy Act, having charge of that work. 

Mr. Ballinger. Will you state to the committee what is the func- 
tion of the chief examiner of the Federal Trade Commission, so that 
the comrtiittee may see your special qualifications for preparing this 

Mr. Horton, The chief examiner's division, or more properly the 
Legal Investigational Division, is charged with the investigation of 
all complaints filed with the Commission. 

When a complaint is filed with the Commission alleging a viola- 
tion of the law over which the Commission has jurisdiction, it is as- 
signed to the chief examiner's division for study and determination 
as to whether or not the facts so presented warrant the docketing of 
an application for complaint and thereafter to make a complete in- 
vestigation of the charges outlined, the preparation of reports cov- 
ering said investigation and the presentation of the case to the Com- 
mission together with the recommendation of the chief examiner 
as to what action the Commission may take. 

Mr. Ballinger. Your Division has been particularly familiar with 
marketing practices in the oil industry, I believe. 

Mr. Horton. It has, for an extended period of ti4ie. 

Mr. Ballinger. All right, Mr. Horton, will you proceed in your 
own way to inform the committee about the report. 

Mr. Horton. The Commission desires to present for the considera- 
tion of the Temporary National Economic Committee a survey of 
controversial marketing practices in the petroleum-products in* 

This report was prepared under my direction, Mr. Harry A. Bab- 
cock, attorney in charge of the field and investigational work of the 
^""eadquarters office having direction of the preparation of the report 
">erson. Mr. Babcock has had a very extended experience in the 


marketing practices of the major oil companies, and he was assisted 
by various members of the staff. 

This report takes up, first, the scope of the survey and then gives 
a brief history of the Commission's work with the oil industry, cov- 
ering many investigations which have been made at the direction of 
the Congress. It then discusses the petroleum and petroleum prod- 
ucts industry, the crude production and sale, prices and price factors 
beyond the crude stage, and also discusses and sets out the various 
marketing companies. It then takes up the mechanics of distribu- 
tion in gasoline, fuel oil, lubricants, oils and greases, tires, and motor 

We then go into the question of questionable practices presently 
operating in the marketing of gasoline, lubricants, fuel oil, tires, and 
motor accessories, the legality or illegality of which at the present 
time is rather undetermined. 

The subheadings deal with unjustified price differences and dis- 
criminations which substantially lessen competition, tend to monop- 
oly, or injure or destroy or prevent competition. It discusses the 
"split account" differential ; preferential or greater discounts allowed 
to commercial accounts or industrial buyers; price differences based 
on volume or trade classifications, or both; the matter of secret 
rebates and sales below cost; leasing service stations at alleged low 
and inadequate rental ; the granting of courtesy or credit-card service 
to 100-percent stations or accounts only; the use of tying and ex- 
clusive dealing contracts; retail price fixing in gasoline; advertising 
with regard to the grade, quality, utility, and other characteristics 
of gasoline and lubricants; contracts with tire and motor- accessories 
manufacturers; pump and tank equipment as leased, sold, or loaned 
by marketers of gasoline and lubricants; the exchange or intersale 
of gasoline by the major marketers. 

If the Committee please, in order that it may have before "it an 
understanding of the various practices which the Commission desires 
to present, I would request the privilege of reading from page 34 
of the report submitted in order that the various features of the 
marketing of oil may be presented. That would be page 16 on the 
mimeographed document. I am reading from the original copy. 


Mr. HoKTON (reading from "Exhibit No. 1294") : 

The puriwses set forth at the beginning of this report have been served by 
information emanating from at least tive sources, (a) major oil companies 
themselves, (b) independent oil producers and refiners, (c) wholesalers, (d) 
retailers, (e) consumers. From such sources the Commission has developed 
some information by its own investigations, but a great deal and perhaps the 
principal part has been taken from complaints received and on file, scores of 
which have come to the Commission through the President's oflSce, from Sena- 
tors and Representatives in Congress, the Department of Justice, and other 
departments of the Government. From aU of these records and a knowledge 
of the industry acquired over the years, there is reason to believe that there 
are currently present in the industry questions and considerations with 
respect to: 


Unjustified price differences and discriminations "which substantially lessen 
competition, tend to monopoly, or injure or destroy or prevent competition." 
(Clayton Act, section 2, Robinson-Pa tman amendment.) 

Use of tying and exclusive dealing contracts. (Clayton Act.) 

Price fixing in gasoline, lubricants, and fuel oil. (F. T. C. Act.) 

Intimidation, coercion, and other oppressive tactics employed by major 
marketers against wholesalers and retailers. 

Misbranding, false and lAisleading advertising with respect to the grade, 
quality, and other characteristics of gasoline and lubricants. (F. T. C. Act.) 

Discriminatory contracts with tire and motor accessories manufacturers. 
(Clayton Act.) 

Pump and tank equipment as leased, sold, or loaned by marketers of gasoline 
and lubricants. (Clayton Act, F. T. C. Act.) 

I^^^EB-OOMPANT sai^s 

In addition to the complaints which fall into the above roughly defined classi- 
fications there are a multiple number of related complaints which raise ques- 
tions with respect to things that are not easily placed in a definite category. 
Examples of these are the exchange of gasoline as between major companies, 
price zoning, retail margins, discriminations accomplished by charging un- 
warranted rentals or failing to charge adequate rentals for filling stations, 
electric or gas display signs, or advertising allowances not made available to all 
customers, black listing, unfair use of credit cards, and refusal to sell. 


Mr. HoRTON [reading] : 

The Commission has received a large number of complaints alleging that 
major oil companies and other sellers of petroleum products are illegally dis- 
criminating i prices, meaning by illegal that the price difference or discrimi- 
nation is unj istified and is attended with substantial lessening of competition, 
monopolistic cendency or the injury, prevention, .or destruction of competition. 

There is a showing that these discriminations aie accomplished in several 

A so-called "100 percent station" as referred to from time to time in this 
survey is a retail service station which dispenses only the products of the major 
company seller and such noncompetitive products and items as the 'seller from 
time to time designates. A "split account" is a retail filling station which sells 
the gasoline and products of more than one company. It is the present practice 
and it has been the practice at least since code operation under the N. I. R. A. 
to sell gasoline to the 100 percent station at one-half a cent per gallon cheaper 
than to the split-account station. It is more than argument to state that the 
real reason for this differential is to hold out an inducement for retailers to 
"go" 100 percent and to confine their selling activities to the products of the 
marketing company. Some of the major oil companies have claimed that there 
is an actual saving of one-half cent in selling and servicing 100 percent stations 
and that the discrimination is justified under the provisions of Section 2 of the 
Clayton Act, as amended ( Robinson-Pa tman Amendment), but they have never 
presented figures or evidence to substantiate their claims in this respect. The 
problem, in effect, involves a comprehensive investigation of the industry and 
the Commission has not had the funds with which to conduct an investigation 
to determine the facts. 

Acting Chairman O'Connell. May I ask whether the Federal 
Trade Commission has ever brought any proceeding against the major 
oil companies on this particular question? 

Mr. HoRTON. The Commission has most recently issued its order to 
ceas6 and desist against the American Oil Co., with which was joined 
certain distributors in the District of Columbia under the Robinson- 
Patman Act in which there was a discrimination showUj and the 
order of the Commission required a cessation of those discriminatory 

Acting Chairman O'Connell. I am still curious. You say the 
major oil companies have never presented figures or evidence to sub- 


stantiate their claims. Have they ever been asked to by the Federal 
Trade Commission ? 

Mr. HoRTON. The Commission has not instituted any proceedings 
against the major oil companies on this question outside of 'what I 
have brought to your attention already. 

Mr. Shaughnesst. Was a cease and desist order entered before 
the hearing on this particular practice of the American Oil Co. 

Mr. HoRTON. No, the Commission's order to cease and desist is 
issued only after hearing. 

Mr. Shaughnesst. So there was a hearing on this particular case ? 

Mr. HoRTON. There was an answer filed admitting the material 

Mr. Shaughnesst. And in that case you alleged that the practice 
constituted a price discrimination agamst certain filling. statioiis? 

Mt. HoRTON. The discrimination was with respect to the practices 
of a company in the city of Washington which was receiving a prefer- 
ential price from the American Oil Co., and because of this preferen- 
tial price was selling at a lower price than other detail stations in 
the city of Washington, being enabled to do so by the discriminatory 
price which it received from the oil company. 

Mr. Shaughnesst. I should think there might have been in issue 
in that proceeding the discrimination of which you are complain- 
ing here, and the major oil company might have had an opportunity 
in the proceeding to produce evidence that the saving of cost was 
effected by this method. 

Mr. HoRTON. The Commission, however, proceeds only against 
named respondents and in a proceeding of that kind I hardly think 
it would be good practice for the major companies- to present evi- 
dence as to whether discrimination was justified or not. 

Mr. Shaughnesst. They made no motion to intervene in that 
proceeding ? 

Mr. HoRTON. Not to n^ knowledge. 

Mr. Davis. Mr. Horton, in the statement that some of the major 
oil companies claimed that this differential was justified, you had 
reference to statements made generally and in preliminary confer- 
ences, and not in formal proceedings, as I • understand it. 

Mr. HoRTON. That is correct. 

I may say for your information that the Arrwrican Oil case did 
not involve the split account differential. I read further from our 
report (reading from "Exhibit No. 1294") : 

One hundred-percent retail distribution for gasoline and lubricants has been 
and is secured in several ways. Until 1928, or thereabouts, the mo&t sue- ' 
cessful device employed vv^as the loaning of pump and tank equipment. The 
loan was accompanied with an agreement that the recipient of the loan would 
pump only the products of the donor in the loaned equipment. The practical 
effect of this arrangement was that pump and tank equipment would be loaned 
to a filling-station operator only by one company and 100 i)ercentism resulted.. 

Beginning about 1928, the major oil companies, led by one of the larger com- 
panies in the Midwest, thought out and put into operation a plan of 100-percent 
control, which became known as the "lease and agency^' plan. The plan waa 
relatively simple. The marketing company leased th6 retail filling station 
owner's location for a term of years (generally five) by the execution of a 
regular real-estate lease. It then, by a separate instrument, appointed the 
lessor its agent. Since the owner of the station was now the regular agedt 
of the oil company, all of his acts in the operation of the station were subject 
to direct order by the oil company, and he was directed to sell gasoline and 
oil products at certain desigiiated prices ; to confine his selling activities to 
124491 — 40— pt. 16, sec. 3 20 


the petroleum products of the lessor, and to other prcSiucts satisfactory to the 

When this plan had spread over the country, and particularly in the area 
east of the Mississippi, a marketing situation developed vi^hich resulted in 
strong protest to the Federal Trade Commission and the Department of Justice. 
The Federal Trade Commission conducted a most extensive investigation and 
ascertained that a very high percent of all retail outlets for gasoline and 
petroleum products throughout the country was under the direct control of 
the major oil companies and that as a result the marketers of lubricants, motor 
accessories, and in fact all products logically dispen^d through filling stations 
were barred from their natural market. Particularly affected was the Penn- 
sylvania Grade Crude Group. This segment of the industry markets motor 
oil and greases and individually or collectively they did not maintain any 
far-flung system of stations similar to the major companies, but were dependent 
upon wholesalers for distribution. These wholesale distributors found that they 
were unable to place Pennsylvania Grade lubricants in the filling stations under 
lease and agency arrangement with the major companies. While, the results 
accomplished by the lease and agency arrangement were exactly the same as 
those forbidden by Section 3 of the Clayton Act, the Commission was most 
doubtful that it could successfully attack the situation under existing law. 
The practical development was that the National Industrial Recovery Act 
contained provisions for the regulation of the oil industry by the Secretary of 
the Interior. Even before the Schechter decision, developments to be hereinafter 
described eliminated the "lease and agency" question. 

The major companies attempted 100-percent control of retail .stations by two 
other devices known as "lease and license" and "license." The lease and license 
plan consisted of a lease of a privately owned retail station to the major com- 
pany and the licensing of the owner to sell only the products of the new lessee. 
The license method attempted to accomplish exclusive dealing results by the 
execution of a questionable licensing arrangement. These devices never were 
employed to the extent of the lease and agency contract and were more ques- 
tionable from a legal standpoint, and less effective in practical operation. 

In 1935, or thereabouts, two types of legislation did away vnth the lease and 
agency arrangement and all similar devices. The first was the enactment by 
twenty-one states of chain-store-tax laws. Filling stations operated under the 
lease-and-agency plan or company owned, were ruled to be chain stores, and the 
prohibitive and progressive chain-store taxes forced the major companies to 
divest themselves of control as quickly as possible. The second, and, at least 
to the companies, conclusive sftroke was the enactment of the Social Security 
Law, which, if the arrangement had been continued, made the oil companies 
responsible, as employers, for every filling-station operator tied up under the 
several arrangements above described. The necessity extended to company 
owned and operated stations, for during the period 1928 until 1935, practically 
all of the major companies purchased desirable sites throughout their marketing 
areas and erected thereon rather costly and certainly creditable filling sta- 
tions which they operated themselves; i. e., by paid employees. Single com- 
panies invested as much as $40,000,000 in these stations, and it is correct to 
state that a real competition grew up between the major companies in the mat- 
ter of acquiring desirable sites and building impressive filling stations. As 
stated, the- enactment of chain-store laws and the Social Security Law required 
the marketing companies' to divest themselves of the legal control Of these 
stations. In most known instances legal title was retained. 

Having "lost" the control of the many thousands of stations held under the 
described arrangement, the companies reverted to the practice of selling to all 
filling-station operators 'at an established tank-wagon price, relying for 100-per- 
cent control upon the split-account differential, merchandise contracts, and other 
Influences. However, there sprang up a new device now popularly referred to as 
the Iowa Plan, because it had its inception in the State of Iowa. 

The Iowa Plan, in actual operation, preserved the desired 100-percent relation- 
ship, at the same time restoring an unqualified relationship of vendor and 
vendee as between the marketing company and the service-station operator. It 
is accomplished in two ways. First, with respect to the company-owned sta- 
tions, the marketing company selected the most promising employee in the sta- 
tion when it was operated as a company owned and controlled station. This 
individual was told that it was now possible for him to become an independent 
station operator. He, of course, had little, if any, capital. Inquisitive as to 
how he could become an independent-station operator, the company informed 
him that it would sell him the stocks on hand, either on a conditional sales 


contract or outriglit if lie liad I lie muiicy, and that it would lease the station 
to him on a basis which would enable him 1o carry out a successful enterprise. 
The arrangement which they had in mind was to lease the station to the oper- 
ator at a rental which generally was one cent per gallon for each gallon of 
gasoline pumped at the station. This rental was collected in advance in the 
sense that it was added to the tank-wagon price at the time of delivery. For 
example, if the tank-wagon price of gasoline was 15.5 cents the invoice would 
bill the gasoline to the lessee at 15.5 cents plus 1 cent rental, or a total of 16.5 

The second and less-used method was for the company to lease a station 
which had become the property of some local bank or investor, at a fixed rental. 
The lease purchased by the company is generally a rather long-term lease, often 
ten years. The marketing company re-leases this to some promising and ener- 
getic service-station man under exactly the same conditions as the owned sta- 
tion, and rental is collected in the same manner. 

It will be noted that under the above-described arrangements, the market- 
ing company undertakes no responsibility for the margin of profit to be' se- 
cured by the lessee, and it will be noted further that the plan ingeniously re- 
lates the amount of rental received to the pumpage — the more pumpage the more 
rental. Since the marketing company is desirous of both rental and gallonage, 
the lessee operator is constantly under pressure to increase the pumpage of 
the station. Assuming that he is energetic, keeps a clean and efficient station, 
employs adequate help, and does everything calculated to attract the public to 
his place of business, there is only one gesture which can thereafter be under- 
taken to increase gallonage and that is to offer attractive or cut prices. 

Probably as a carefully considered competitive device, many of the market- 
ing companies in various parts of the country have brought varying degrees of 
pressure upon the lessee operator to cut prices and increase volume. In some 
instances, the evidence is clear that agents of the marketing company have 
gone to the operators and actually produced cut-price signs which they de- 
manded and required be displayed. It is to be remembered that this cut price 
only narrowed the dealer's margin and was imrelated to the tank-wagon price 
which he paid. The developments after this are natural. For a short time 
after the display of cut-rate prices, the volume of the retailer was increased, 
such increase being drawn from competitive stations. Confronted with Cut 
prices, competitive stations perforce lower their prices, which in turn has the 
effect of decreasing the temporarily increased volume of the first price cutter, 
and all comi)etitors in the given area are again on equal basis, except that now 
each is operating at a reduced margin. Any reduction in price, however, 
results in a benefit to the consuming public. 

There is a further ramification among any group of retailers competitive in a 
given area who have come to the situation just above described. Remembering 
that the marketing company is selling to aU of its dealers, lessees, and inde- 
pendents (exclusive of split accounts) at the same tank wagon price, and 
remembering that the lessee is paying an additional one cent rental, it is clear 
that disregarding in whole or in part the taxes and the overhead of the inde- 
pendent service station operator, such independent operator is in possession 
of a one-cent .advantage in the situation in terms of laid-down cost. Using 
again the example of a tank wagon price of 15.5 cents and a rental of one cent 
to lessee operators, it is obvious that granted a 2.2-cent margin between the 
lowered and cut retail price and the tank wagon price, the independent has 
now at least a margin of 2.2 cepts, whereas the margin available to the lessee 
is 1.2 cents. Confronted with this situation, the major marketing companies 
have taken various steps. Sometimes they remit the one-cent rental and for a 
time permit the lessee operator to operate the station without any charge for 
rent; sometimes the lease arrangement is changed to a fixed rental, i. e., a 
small sum per month, substantially lower than the rental which would have 
to be paid if the one-cent-per-gallon pumpage basis were maintained. 

Mr, Shaughnesst. That point brings up a theoretical conflict that 
has been present throughout the hearing as far as marketing is con- 
cerned. We have been told that the service stations have been turned 
loose, that there are these price wars. We have also been told that 
competition in the marketing end of the business primarily is a matter 
of securing dealers, giving dealers additional concessions, helping 
them out by painting service stations, loaning equipment, and so forth. 


Now, why should a company incite a price war and reduce its dealer's 
margin if the effect is going to be a possible loss to the dealer or a 
possible loss of gallonage if the price war continues ? 

Mr. HoRTON. I would say that because the major company is inter- 
ested primarily in gallonage. 

Mr. Shaughnessy. Primarily in gallonage, but can you get gal- 
lonage except by dealers who are inclined to be cooperative and push 
your product? Don't you lose dealers when you subject them to this 
constant pressure ? 

Mr. HoRTON. There is always that equation involved in the situa- 
tion ; yes, but if by these price wars there is an increased gallonage it 
very often inures to the benefit of a company which may incite that 
price war. 

Mr. Shaughnessy. I was thinking of it as a matter of long-range 
management. I am unable to be convinced that a major company 
can be completely disinterested in the service-station price at any 
timCj because eventually pressure on the service -station price will 
require them to give concessions to the station which will result in a 
depression of the tank-wagon price. 

Mr. HoRTON. That results at times ; yes. 

Mr. SHAUGkNESSY. Would yoii say that the size of the company 
makes possible this continuance of this type of competition ? 

Mr. HoRTON. Size, I think, is a factor entering into the question, 
most decidedly. 

Mr. Shaughnessy. Would you also say that the policies of the 
companies have been more, or less the same in this respect, or do 
some companies pursue tactics that others do not? 

Mr. HoRTON. The Commission has observed a uniformity of prac- 
tice among the major companies in practically all these matters. 

Independent operators complain of this gesture on the part of the marketing 
companies, stating in such connection that it is a discrimination. The charge 
is technically correct, for, in a last analysis, lessee dealer A is being sold gaso- 
line on the same basis as it is being sold to independent oi)erator B, and 
operator A is being provided with a $30,000 or $40,000 station free of charge. 

Complaint to the Commission and some investigation tend lo give credence 
to the charge that certain large marketing companies deliberately precipitate 
the margin price wafs just described above. It is claimed with considerable 
truth that the original company-owned stations were rather widely spread 
throughout the trade area ; that they occupied the most desirable and promi- 
nent locations on important State highways and at intersections. The operators 
of these stations being under the Iowa plan were vulnerable to the influence, 
pressure, .and threats of the marketing company and initiated the above- 
described cycle by posting cut prices throughout the area. It is claimed that 
30 or 40 stations advantageously located throughout a large area — perhaps a 
whole State — <:an and do depress the inargin of price for the whole State. In 
isolated areas this procedure has been carried out, but generally the Commission 
is in possession of no convincing proof that any major company has, as a 
policy, intentionally brought economic ruin upon its own retail dealers. 

Returning now to the title of this section, it is here conchided that the split- 
account differential is an important auxiliary device in the maintenance of 
100-percent stations. Indeed, it is most probable that were the differential to 
be erased, the ratio of nine 100-percent stations to one split-account station 
would be very materially reduced, if not reversed. 


Mr. HoRTON (reading from "Exhibit No. 1294") : 

The Commission has tabulated upward of fifty complaints which make seri- 
ous protest with respect to the practice of major oil companies and other sellers 


in granting preferential or greater discounts to so-called commercial accounts 
and industrial buyers and in some cases to wholesale dealers. 

Typical of the first type of complaint is the situation where the marketing 
seller will deliver gasoline into the tank of the farmer, truck operator, or 
small user at prices which are lower than those charged to the neighborhood 
service-station operator or retailer. The result is claimed to be and probably 
is that the retailer's volume is decreased and by^ reason of such decrease his 
profits are minimized or are erased entirely. Lest it appear that this practice 
is confined to major oil companies, it should be here set out that the practice 
is common to wholesalers and independent marketers ; that it is practiced by 
retailers themselves to the extent that they will "give away" part of their 
margin to certain preferred customers and accounts, at the same time endeavor- 
ing to exact a full margin of profit from the cash buyer and those of the public 
who visit their stations, for gasoline supplies. 

The second type "of complaint under this heading has to do with situations 
where the larger" selling elements of the industry sell to truck fleet operators, 
bus lines, and to all tyjtes of industry which either oi)erate motor vehicles or 
in some way have use for large quantities of motor fuel or lubricants. It is 
the regular practice of practically all marketing companies to sell this type 
of user at prices lower than those charged to wholesalers. Occasionally, the 
described large industrial buyer resells some of the gasoline and oil so pur- 
chased to their employees at their various plants and factories at cost, as an 
additional benefit to the employees. The employees rightly consider this advan- 
tage as part remuneration for their services. A very limited number have com- 
plained that commercial buyers have installed pumps and are selling to the 
public. The practice necessarily deprives both the local wholesalers and retail- 
station operators of business and profit. 

Again it is to be observed that the recipients of the discriminatory and) lower 
price are not in competition with the recipients of the higher price (except in 
the few instances where resales are made), and for such reason the situation 
involves a refined construction of Section 2 of the Clayton Act. Generally, this 
practice of large sellers going direct to volume accounts while at the same time 
maintaining wholesale and retail outlets for their commodities and granting 
to said large accounts a lower price, has been observed not only in this in- 
dustry but in other industries. The question involved is one broader than this 
study and no conclusion is ventured here. The attention of the Temporary 
National Economic Committee is invited to this practice. 


Mr. HoRTON (reading further) • 

The practice of the major oil companies and other marketing units of the 
industry in selling gasoline and lubricating oils at different prices based on^ 
volume purchases as \yell as arbitrarily classifying trade as to function, has" 
caused the Commission to receive several specific complaints alleging such prac- 
tices to be unfair price discriminations. To determine the justification of such 
complaints entails considerable investigation and study on the part of the Com- 
mission as to whether or not such price differentials make only due allowance 
for differences in the cost of manufacture, sale, or delivery resulting from the 
differing methods or quantities in which such commodities are gold or delivered. 
As to the pric6 differentials based on trade classifications, it must be determined 
whether or not such trade classifications are arbitrary or true classifications 
based on functional differences. Furthermore, for any such discrimination to 
be illegal, it must necessarily lessen competition, tend toward monopoly, or 
injure, destroy, or prevent competition. 

It is claimed to the Commission that such quantity sales by the major oil 
companies are not only unjustifiable under Section 2 of the Clayton Act, but are 
indefensible from the standpoint of distribution alone, the claim being that 
major oil companies engaged in production, manufacture, transportation, and 
distribution absorb this loss in the distributing end to obtain increased gallon- 
age and correspondingly greater profits in the production end of the business. 
Any merit in the claim is inherent in the question as to whether or not prices 
are fixed to competitors at ^the cost stage. For example, if the complainant is a 
wholesaler, dependent for economic existence on a profit to be made on gasoline 
purchased from refineries, the, determination is on whether this price is fixed 
and not upon whether the jna jor oil company is or is not conducting its market- 
ing operations at a loss. ,f 


Investigation of one major oil company upon charges that it is granting 
illegal discriminatory prices under guise of volume discounts and false trade 
classifications would necessitate the employment of a large number of lawyers, 
accountants, and investigators. It has not been undertaken to date by the 
Commission, and of course, neither the time nor the funds have been available 
for such an investigation for use in this report. 


Mr. Horton (reading) : 

Charges against the major oil companies of granting secret rebates to pre- 
ferred customers, either directly or indirectly through commission agents, have 
been received frequently by. the Commission. There is a relationship between 
secret rebates and sub-section (c) above, and the evidence is that every element 
of the petroleum products marketing industry; i. e., majors, independents, 
wholesalers, and retailers are granting "insides" or so-called secret rebates to 
certain vendees. 

I had hoped to be able to present to the Commission today certain 
specific evidence of those facts, but unfortunately the records on 
which I intended to rely are not prepared, but it may be that if the 
committee so desires, the Commission could present those data to it 
some time later. 

Many charges of this type have been preliminarily inquired into by the Com- 
mission and the universal answer of the "offending" company has been that the 
preferential price granted has been given in order to meet competition. Unques- 
tionably, all marketing companies and particularly the major companies seek 
gallonage by offering price advantages to the customers of other companies. 
Sometimes the customer transfers his business as the result of the offer, but 
more often, he continues to buy from his then supplier and obtains an equal or 
nearly equal price from it. The Commission has investigated a number of com- 
plaints of this character and as a result of such investigations the inequalities 
complained of were corrected by the offending companies. 

The Comffaission has in its files complaints from independent wholesalers and 
retailers, alleging that the major oil companies are in limited areas selling 
gasoline and lubricating oil at prices which are not only discriminatory but are 
below the sellers' cost. It is charged that this is done through the company- 
owned or controlled distributors -and service stations. 


Mr. Horton (reading^: 

Under the so-called Iowa Plan, the marketing company's return on each 
leased service station is dependent upon and commensurate with the gallonage 
of the station. It can be assumed, however, that the marketing company is not 
in the real-estate rental business and seeks to show no profit from the rental of 
its stations as an enterprise apart from oil marketing. The marketing company 
Is engaged in the oil business and it is vitally interested in the volume of- busi- 
ness flowing through any leased station. The best information which tho Com- 
mission has tends to show that the real-estate operations of at least the major 
companies are carried on at a loss, investment, repairs, taxes, etc., considered. 
An additional cause of loss on real-estate operations of the companies is that 
stations have been built or acquired on long-term lease, which, for local reasons, 
turn out to be unprofitable. A simple example is the situation where the com- 
pany has invested perhaps $40,000 in the erection of a modern service station 
on a corner or highway where the volume of traflSc warrants and will sustain a 
station of this type. Local or state authorities change a state road or a traflSc 
artery either away from the station, or at some point ti-aflSc is diverted and the 
$40,000 investment is for the most part lost, because now the pumpage will not 
produce an adequate return on the investment. 

Assuming that this station is leased out, it is clear that a lessee cannot be 
expected to pay a rental based upon the original capital investment. The 
marketing company lowers the rental to a basis justified by the actual pumpage 
and this gesture on its part cannot be characterized as leasing the station on 


a low or inadequate rental unless the rather unreasonable view is taken that 
the rental must be based upon the original capital investment and show a profit 

The rental situation has been hereinbefore described under Chapter VIII, 
Section 1, subsection (a). It is there pointed out that in price wars between 
retailers where the lessee is paying one cent rental, the major marketing com- 
pany's lessee is at a disadvantage and in assisting him it is the sometime prac- 
tice* of the marketing companies either to remit the one cent relntal or to 
change the rental basis from pumpage to a flat monthly rentaL There has 
not been enough time to develop adequately the entire question as to whether 
or not the principal marketing companies are assuming losses or making profits 
on their filling station real-estate transactions. Such information as is Iq the 
possession of the Commission tends toward a beUef that this type of trans- 
action is unprofitable to the marketing companies. 



Mr, HoRTON (reading) : 

It is the rather uniform practice of marketing companies, particularly the 
major companies, to issue to retail consumers and industrial accounts so-called 
"Courtesy" or "credit" cards. These cards bear the name of the customer and 
instruct all the company's 100 percent retail station operators to sell the holder 
his gasoline and oil requirements on credit and to assign the obligation to the 
issuing company. The issuing company reimburses the filling-station operator 
at his regular retail price and bills the holder of the card. Tthe customer 
benefits to the extent of the credit accommodation and convenience granted. 
The practical benefit to the marketer is that the holder of the card wiU use 
the card and confine his purchases to the products of the issuing company. 

The arrangement is extended to 100-percent stations only and the holder 
of the card cannot use the card at a split-account station. Issuers of credit 
cards attempt to justify this conduct by stating that they cannot be certain 
that the courtesy or credit cards will be used in connection with a purchase 
of gasoline of their own brands if the arrangement is| extended to stations 
selling other brands of gasoline. The practice is an added inducement for a 
station to go 100 percent, and, in a sense, it is a penalty against the split- 
account station. Generally, it is probably not a good thing for the gasoline- 
marketing industry. The question as to possible violations of Section 2 of the 
Clayton Act and the Federal Trade Commission Act requires further study and 


Mr. HoRTON (reading) : 

Considerations which arise under this broad heading are infinite in tariety, 
extending all the way from the "lease and agency" relationship to the straight- 
sales contracts containing the provision that the vendee will not deal in any 
competitive petroleum product, or, indeed, any product not satisfactory to the 

The major oil companies, particularly in the past, appear to have had two 
main objectives in marketing gasoline and lubricants: 

(a) the confinement of the service-station, retailer to its own products and 
other products satisfactory to it; and 

(6) the fixing of the spread between the price paid by the retailer and the 
price to be charged to the public. 

More recently, and at least on the Eastern Seaboard, major companies have 
abandoned the latter, (6), but seek to maintain condition (o). It is a matter 
of almost common knowledge that the State chain-store tax laws and Social 
Security obligations have created a difficult problem for the large oil companies, 
and they have receded progressively from the plan previously discussed and 
from the possession or ownership of retail stations operated by themselves in 
their own names. 

Since lease and agency, lease and license contracts, and license contrascts have 
been abandoned for the most part by the principal marketing companies there 
seems oo good reason, to discuss them in greater detail than appears ante. 


Contracts of lease and re-lease (the Iowa Plan) now in general use are of 
immediate interest and specimens of these types of contract accompany this 
report, identified as "Exhibit D." 

Under these contracts the station is either leased or released to the retail 
dealer; the rental to be by the lessee is conditioned upon the gallonage 
pumped at this station or oftentimes is based on a flat rental. Many contracts of 
this tyi)e call for one cent per gallon per month rental. This type contract with 
the lessee is generally designated a "merchandise contract" and frequently con- 
tains the condition that the lessee shall not deal in competitive products or other 
products unsatisfactory to the lessor. Copies of contracts in the Commission's 
files show that some of these contracts can be terminated without cause by the 
lessor on short notice, five and ten days, and this right of quick eviction is 
alleged to make the lessee responsive to the purposes of the lessor marketer. 
Reciprocal right of the lessee to cancel on the same notice is not incorporated 
into some contracts. 

In addition to the straight covenant not to deal in competitive products, the 
dealer is held to exclusive dealing by two other devices introduced into his pur- 
chasing contract with the mai^keting company ; i. e., by agreeing to buy "his full 
requirements," or contracting to buy a monthly or yearly minimum which exceeds 
any reasonable expectancy of volume to be sold at the station. 

A "tying" contract is, broadly speaking, a sale or lease o£ goods, wares, or 
merchandise uiwn the condition, agreement, or understanding that the vendee's 
or lessee's requirements of other products will be purchased or leased from 
the vendor or lessor as a condition of the first transaction. The practice creates 
a situation where the principal marketing companies insist that their cus- 
tomers sell all products made by the company if it is to purchase any of the 
products, and, of course, the principal product of each company is branded 
gasoline. No written agreement is used in creating the described arrangement. 
The Commission has received complaints which make this claim, but generally 
any charge of the use of "tying" contracts merges into the consideration sur- 
rounding 100 percent station operation as practiced by the marketing companies. 
Section 3 of the Clayton Act prohibits a lease, sale, or contract for sale, with 
the agreement that the lessee or purchaser shall not use or deal in the goods 
of a competitor of the seller or lessor, where the effect may be to substantially 
lessen competition or tend to create a monopoly. 

It is to be noted that every "tying contract" can be phrased in the form of a 
"requirement contract." A tobacco dealer, for instance, might buy of a large 
tobacco company his "entire requirement" of tobacco for the year. This would 
necessarily prevent his dealing in the tobacco of competitors. Or a shoe manu- 
facturer might agree to lease his "entire requirement" of shoe machinery from 
a machinery company, giving them the right to retake any machine if he took 
part of his "requirement" from a competitor. 

Moreover, there is a real difference between "requirement contracts" and ordi- 
nary contracts for sale. If a manufacturer contracts to buy 5,000 gallons of oil 
from the Standard Oil Company during the coming year, he is at liberty to buy 
any quantity he pleases from competitors. But if hie contracts his "entire re- 
quirement" from the Standard, he impliedly agrees to buy none from competitors. 
In addition to -the aflSrmative covenant to buy a certain quantity from the 
Standard there is an implied negative covenant not to buy from competitors. 
This negative covenant is within the prohibition of Section 3 of the Clayton Act 
if the effect may be to substantially lessen competition or tend to create a 

It is necessary to inquire, therefore, whether the effect of such contracts may 
be to substantially lessen competition or tend toward monopoly. This cannot 
safely be left to a pure question of fact to be determined anew with respect to 
each controversy. The size of the corporation using the contract, and its gen- 
eral monopolistic intent, are, it is true, important questions to consider before 
an answer can be given in a particular case. But to a considerable degree, it is 
a question of law whether a given type of contract tends to restraint or monopoly. 
Certain types of "tying contracts" inherently impose artificial restraints on the 
purchaser so severe and so devoid of justification from the point of view, of 
productive and distributive eflBciency that they should be condemned whether 
they be used by a large or small manufacturer. In others the element of arti- 
' ficial restraint might be so .flight, and the business justification so c \t, that they 
could be approved, regardless of the character of the parties. 
' There is a presumption of unlawful restraint arising from ai 'exclusive" 
contract. Every "exclusive" contract has some tendency to impt ^e; restraint 


on the purchaser. Some such contracts have an inherent tendency to restrain 
trade and are unlawful per se, regardless of the seller's size and general 
monopolistic intent. Is the primary purpose of such contracts to secure legiti- 
mate economic advantages or is the main purpose to create artificial diversion 
of trade? If such contracts are merely arrangements reasonably necessary to 
secure to the parties legitimate economic advantages other than the artificial 
diversion of customers from the seller's competitors, such fact should be con- 
sidered in determining the legality of the contract. Where the producers are 
few and powerful, and are engaged in other respects in an attempt to monopolize 
the market, there is a strong probability that artificial restraint is the main 

Mr. Shaughnesst. You say, "Where the producers are feys^ and 
powerful. * * * There is a strong probability that artificial re- 
straint is the main purpose." I assume that that sentence is predi- 
cated on the theory that most, if not all, producers use contracts of 
this character. 

Mr. HoRTON. Many of them do ; yes. 

Mr. Shaughnesst. Would you say the policies of the companies 
with respect to using contracts of this character is substantially uni- 

Mr. HoRTON. I would answer that by "yes." 

(The Vice Chairman assumed the chair.) 

The Vice Chahiman. Do you prefer to conclude your statement 
before we ask questions, or do you like to be interrupted by questions ? 

Mr. HoRTON. Whichever it meets the pleasure of the committee to 
do. I am willing to accede to their desires. 

The Vice Chairman. It may be just as well to conclude your 

Mr. HoRTON. Thank you. 

retail price fixing in gasoline 

Mr. HoRTON (reading) : 

It is a matter of common knowledge and report that all marketing companies 
maintain a fixed differential for premium or high-test gasoline. Most premium, 
or high-test, gasolines are manufactufed by a patented process which makes 
use of tetraethyl lead, the patents being owned and licensed by the Ethyl 
Corporation. A few high-test brands are manufactured without the use of 
the ethyl patents. A fixed differential of two cents per gallon above regular 
gasoline is provided for in the licensing arrangements between the owner of 
ethyl gasoline patents and its licensees. Other high-test brands maintain the 
same differential. The Department of Justice, however, has instituted a court 
proceeding which challenges the legality of this licensing plan. 

Complaints alleging price fixing in the industry at all levels before and in- 
cluding the tank-wagon price have been referred by the Commission to the 
Department of Justice for its consideration. 

Subject to what has been discussed hereinbefore under rebates, price dis- 
criminations and split account differentials, the retail marketers purchase their 
gasoline and other petroleum products at prices which are very similar if not 
uniform. Charges of illegal agreements between retailers seeking to secure for 
themselves a definite and fixed margin between tank-wagon price and the retail 
price are generally found to be collateral with controlled margins as influenced 
or brought about by direct requirements of the large marketing companies. 
Since this relation e;sists, a sketch history of controlled margins of profit to the 
retailer and present-day trends with respect to this factor here follows. 

When the lease and agency arrangement became the most popular and exten- 
sively used method of station control, the n>arketing company assumed respon- 
sibility, for the spread between the tank-wagon price and the retail price, and so 
far as stations controlled under the lease and agency plan and company-owned 
stations, the task was not diflBcult. It was only when sales were made to inde- 


pendent retailers that the task of controlling the margin became difficult. Inde- 
pendent retailers buying at the tank-wagon price were in a position to attract 
gaUonage by quoting a price lower than the price posted by the marketing 
companies in their controlled stations. This condition usually continued to a 
point where the gaUonage of some marketing company was affected and such 
company elected to lower its retail price to meet the competition. When this 
was done, other marketing companies operating in the area followed and the 
net result was a reduction of the consumer price; a lowered margin or spread 
to the independent retailer and sometimes a cut in the tank wagon or wholesale 
price. The described type of price war was local in character, sporadically 
timed, relatively short-lived, and in the last analysis evidenc«'^. punitive conduct 
on the part of large marketers rather than true price competition. As soon as 
the price cutters were sufficiently "disciplined" former prices were restored. 

At the time of this type of lease and agency and company-owned control, the 
Commission received numerous complaints alleging that the large companies 
were destroying independent competition by lowering the margin in their owned 
and controlled stations to the point near the tank-wagon price; at the same 
time holding the tank-wagon price rigid all along the line, the independent 
being in a position where he had to buy his gasoline at the established tank- 
wagon price and sell at a very small margin in competition with his supplier 
operating through owned or controlled stations. 

Since the Iowa Plan came into operation about 1936, the type of complaint 
most often received by the Commission is that the margin of profit accruing to 
the retailer is riot sufficient to accord him a living or a fair return upon his 
investment and enterprise. As hereinbefore appears, retail dealers and groups 
of retailers have made complaint that marketing-company control, as it pres- 
ently exists, seeks to lower or force down the gross margin of profit between the 
tank-wagon price and the retail price to the benefit of the marketing companies. 
There is a showing that retail dealers in some trade areas have dealt with 
this — as they view it — disregard for their profits and economic well-being by 
agreeing upon a gross margin or spread and fixing the same in an amount satis- 
factory to them. Since tank-wagon prices are in the main uniform as between 
the several marketing companies, this practice results In identical retail prices 
secured by the parties to the undertaking. 

The Commission observes a uniformity of conduct on the part of all major 
companies with respect to prices, methods of selling, and, indeed, nearly every 
phase of trade conduct. 

The Commission has in its files several types of complaints received from 
consumers of fuel oil and those interested in fuel-oil marketing. 

Complaints which allege intimidation, coercion, or other oppressive tactics em- 
ployed by large marketers against retailers have been received. They take the 
form of claims that retail leases have been arbitrarily cancelled without reason, 
petroleum supplies have been refused, harmful business conduct has been dic- 
tated to lessee retailers and independent retailers. Complaints of this char- 
acter are herewith identified as Exhibit C. 


Mr. HoRTON (reading) : 

Claims for the quality, utility, greater mileage, etc., of branded gasoline and 
lubricants appear in all advertising media. Frequent complaints are made that 
these claims and representations are in whole or in part false. The Commission 
has investigated complaints of this character and has secured a number of 
stipulations and issued several cease and desist orders against such practices. 
Those are contained in Exhibit B,^ submitted to the Committee. 


Mr. HoRTON (reading) : 

The Commission has information that almost every large oil company has 
contracts with manufacturers of tires, batteries, automobile lamps, and other 

Preferential treatment of the major marketing companies by tire companies 
and others is being dealt with by formal procedure of the Commission and by 

» Of "Exhibit No. 1295," on file with the committe. 



Mr. HoRTON (reading) : 

In Federal Trade Commission vs. Sinclair Refining Com,pany et al., 261 U. S. 
463, decided in 1923, the Commission, in substance, charged that it was an 
unfair method of competition for a large marketer of gasoline to loan or lease 
pump and tank equipment to retail dealers, upon the condition or agreement 
that the dealer would not use the equipment for distributing the products of 
competitors. The Supreme Court, in passing on the case, stated that the practice 
did not restrain the commerce involved in an undue manner and that it did not 
constitute unfair competition within the meaning of the Federal Trade Commis- 
sion Act or under the provisions of the Clayton Act. Since this ruling all mar- 
keting companies have made use of the decision in divers ways. At the present 
time some of the major companies are allegedly selling pump and tank equip- 
ment at preferential prices made possible by special contracts with the equip- 
ment manufacturers ; some allegedly are loaning the equipment outright and 
still others have made arrangements whereby dealer customers allegedly can 
purchase from the manufacturer at what seem to be preferential prices. 

Two types or phases of competition are involved : First, pump- and tank- 
equipment manufacturers and their wholesale dealers who seek business from 
retail gasoline distributors are alleged to be injured by discriminatory advan- 
tages given to purchasers by or through the oil company. Second, the provision 
of free equipment or equipment at favored prices by large companies in con- 
junction with the sale of gasoline and other petroleum products affects the 
competition between rival oil marketers. Not only is pump and tank equipment 
involved, but also service station and shop equipment such as lifts, grease 
guns, air compressors, electric signs, etc. 

It is obvious that the principal marketing companies are not particularly 
interested in developing a business on these types of commodities. They are 
essentially engaged in the sale of i)etroleum products apd it is only to further 
the sale of these products that they are interested in the sale or loaning of 
equipment. The information is that when equipment is sold to the retailer 
at a favored price, or when it is loaned to him, there is alleged to be definite 
understanding — usually oral — that the recipient will remain or become a cus- 
tomer for the petroleum products of the marketing company. 

Among the objectors to the practice are wholesalers engaged in selling equip- 
ment as an independent project; i. e.. Independent of the sale of oil products. 
In analyzing the subject, it is obvious that manufacturers of pump and tank 
equipment and of other retail station equipment and the wholesalers who 
sell their products are at a disadvantage in meeting the described competition. 

In connection with the question of equipment as loaned or sold by the prin- 
cipal marketing companies, the following phases require further study and 
consideration : 

(a) The practice of selling equipment and relating the sale to gallonage; 
i. e., payment to be made at a stipulated rate per gallon or any similar arrange- 
ment ; 

(5) Marketing companies' interest in, contract with, or ownership of manu- 
facturers of pump, tank, greasing, and other equipment ; 

(c) Price discrimination as allegedly practiced by the equipment manufactur- 
ing companies and the large petroleum products marketers. 

I may say for the benefit of the committee that those inquiries are 
now going on and investigations are being made of the practices of 
certain of the marketing companies and the pump and equipment 
manufacturers to determine if there is illegal price discrimination 
being carried on. 

Copies of letters of complaint received by the Commission with respect to the 
subject matter of this section are herewith identified as "Exhibit C, pages 
242 to 260." 


Mr. HoRTON (reading) : 

Sales figures assembled by the Department of Justice and admission by major 
marketing companies establish that there is an extensive exchange, ef gasoline 


between them. According to the Commission's information, gasoline so ex- 
changed is not usually processed further by either party to the exchange and 
is sold under the brand names of the respective marketing companies ; i. e., 
if the A Company exchanges gasoline with the B Company, the A Company will 
market the gasoline received from the B Company under A Company's trade 
name; the B Company will market gasoline received from the A Company 
under the B Company's trade name. 

Tlie exchange account is kept in barrels of gasoline and not in collars. If 
adjustment is necessary at the end of any stated period, it is made on the 
basis of current prices. With respect to the practice as a factor in the retail 
marketing of gasoline, two considerations arise. Mrst, with respect to advertis- 
ing, and second, with respect to the practice as it extends the range of selling 
activity of each company. 

This report has already made some reference to the extensive advertising 
done by all the major marketing companies ; the creation of customer demand, 
or so-called consumer acceptance, for the branded products of the several com- 
panies — Esso, Fire Chief, Conoco, Good Gulf, Sunoco, H-C, Amoco, Super Shell, 
Texaco, and others. The customer who prefers and regularly purchases one 
or another of these branded products believes that the product possesses certain 
qualities, characteristics or merit not found in competing brands. Therefore, 
he purchases his gasoline requirements from the company of his choice in 
the belief that he is obtaining a product manufactured by that company. The 
practice just described defeats at least the last referred to assumption of the 
customer; namely, that the gasoline is manufactured by a particular company 
and contains all the characteristic qualities set forth in that company's adver- 

It is the understanding of the Com'mission that the Department of Justice 
intends to provide the Temporary National Economic Committee with certain 
observations and conclusions with respect to what this practice means in terms 
of production control. 

Copies of complaints • with respect to the above-described practice accompany 
this report, identified as "Exhibit C, pages 2.61 to 266." 


Mr. HoRTON (reading) : 

The data presented herewith constitute a survey of the character of ques- 
tionable and perhaps illegal marketing practices, which allegedly permeate the 
entire retail marketing structure of the i)etroleum industry. It is quite appar- 
ent that a proper solution of the various problems presented her'ewith cannot 
be made until a thorough and complete investigation has been made of the 
marketing practices in this industry, with particular relation to the marketing 
practices of the major oil companies.' The report itself is illustrative of the fact 
that complaints have been lodged against every large marketer, group of mar- 
keters, and some retail associations. Some of these matters (those which appear 
most serious or oppressive) have been investigated by the Commission and 
corrective action taken in a number of instances. Other complaints have been 
referred to the Department of Justice. Tt^e Commission has been unable to 
undertake a general investigation of the various practices for the reason that 
it has not had an appropriation suflBcient to enable it to conduct such a com- 
prehensive investigation and at the same time carry on the duties imposed upon 
it by law. 

Mr, Ballinger. Mr. Chairman, before the witness is questioned, I 
want to make a motion that the efxhibits which are not to be printed 
in the record may be filed with the committee. We have asked that 
the report itself be printed, but ask that the exhibits be not printed 
since they are very voluminous and would burden the record, but we 
would like to file the exhibits with the committee. 

The Vice Chairman. Would it be a better suggestion that the 
exhibits be filed for the consideration of the committee and if the 
committee decide some part of them should be printed later, it may 
be done? 

Mr, Ballinger. I think that is much better. 


Mr. Davis. In other words, I think it would be proper to file with 
the committee all of the numerous exhibits which are identified in 
the prepared statement. 

The Vice .Chairman. If there is no objection, that procedure may 
be followed. „- -. 

(The exhibits referred to were marked "ExhibiJ> No. 1295" and are 
on file with the Committee.) 


The Vice Chairman. I would like to ask you one or two questions: 
Mr. Horton, have you explained to the committee — unfortunately I 
wasn't here — whether or not your designation of marketing com- 
panies included the integrated companies that market their own 
products ? 

Mr. HoRTON. Yes. 

The Vice Chairman. To what degree are the products of pro- 
ducers of oil and gasoline, and so forth, sold by concerns other than 
themselves, or one of their controlled organizations? 

Mr. HoRTON. All companies, all major marketing companies, sell, 
of course, their branded gasoline, which is distributed 

The Vice Chairman (interposing). I don't believe you got my 
question. What percentage of the products of these companies is 
sold by agencies other than themselves in the first instance ? 

Mr. HoRTON. Mr. Chairman, I don't believe we have the figures 
covering that. 

The Vice Chairman. Let me put it this way : Are there any large 
entirely independent distributors of the products of the oil companies ? 

Mr. HoRTON. There are some large independent distributors, yes, 
who purchase their requirements from the major marketing com- 

The Vice Chairman. Do they receive any concessions? 

Mr. HoRTON. That is also a question, Mr. Chairman, I think which 
must be determined by a broader investigation. 

The Vice Chairman. How long would it take to bore into that a 
little bit and find out? 

Mr. HoRTON. Mr. Chairman, if I may extend my remarks slightly, 
I believe the whole question of marketing of gasoline is a question 
surrounded with a very great public interest. 

The Vice Chairman. We all agree on that. 

Mr. HoRTON. The complaints which we have received are becoming 
so heavy that I personally feel that the time is coming soon when 
we must take some action with respect to this whole ma^eting prob- 
lem. As I say, I feel, personally, that in order to bring about a 
clarification of all the issues in the marketing of petroleum products, 
a broad, comprehensive investigation 

The Vice Chairman (interposing). We understand you want an 
investigation made, but I am trying to find out what you can tell us 
now. We understand that is your general view. 

Let me ask you this question : These practices to which you refer, 
do they grow out of competition among the big integrated companies, 
or do they indicate a disposition, in your judgment — and I think it 
would be proper to ask for your judgment — ^to put the independent 
distributor out of business? 


Mr. HoRTON. I would answer that question by saying that in view 
of the fact that the major marketing company is naturally and pri- 
marily interested in gallonage, that these practices flow from that 
desire of the marketers to increase* their gallonage in every manner 

The Vice Chairman. *I know they want to sell all they can, but 
that isn't what I asked you. I asked you whether these practices 
grow out of competition among these concerns, or sort of a concerted 
purpose to put the independent distributor out of business, if you 
have an opinion, and I think you are sufficiently familiar with the 
whole thing to express an opinion on that. 

Mr. HoRTON. Do I understand by your use of the term "independ- 
ent distributor" that you mean the wholesale marketing distributor? 

The Vice Chairman. No ; I mean that fellow to whose station you 
go to get some gasoline, the retailer. 

Mr. HoRTON. I wouldn't say that it is desired to put the independ- 
ent retailer out of business; although the Commission has received 
numerous complaints to that effect. 

The Vice Chairman. You think then it is competition among the 
companies ti:ying to get as much gallonage as they can for tnem- 

Mr. HoRTON. Exactly. The independent retailer suffers in that 

The Vice Chairman. Are there any questions? 

Mr. Avn >sen. Do you think there is' any concerted action among 
the major companies to put the independent refiner out of business? 

Mr. Horton. That phase of the c[uestion has not received my con- 
sideration because that was primarily handled by the Department of 

Mr. Davis. With respect to the question propounded by the vice 
chairman of the committee, are you prepared to state that the studies 
which have been made by the Federal Trade Commission and its 
staff' indicate that a very large part at least of the distribution is 
made by the major oil companies through their authorized whole- 
sale distributors? 

Mr. HoRTON. That is true, and it seems to be the plan and desire 
of the major marketing companies to 'distribute their products 
through their controlled or owned outlets. 

The Vice Chairman. Now may I asjj; a question. It is their desire 
to control distribution through their controlled outlets, and you are 
of the opinion that that dispositfon is in order to acquire gallonage 
as distinguished from the control of the retail distribution ? 

Mr. HoRTON. Well, that is the method by which they would obtain 
retail control, by insisting on an extension of the gallonage require- 

The Vice Chairman. Then it would be competition among them- 
selves, wouldn't it? 

Mr. HoRTON. There would be competition in the sale and distribu- 
tion of gasoline ; yes. 

The Vice Chairman. How in your judgment could these com- 
panies have access to the market on the basis of equality of oppor- 
tunity among themselves without controlling their respective agencies 
of retail distribution? 


Mr. HoRTON. How could that be done? 

The Vice Chaieman. Yes. 

Mr. HoRTON. Possibly by eliminating the plan of a marketing com- 
pany owning or controlling its retail outlets. 

The Vice Chairman'. That is a very definite answer. Are there 
any further questions? 

Representative Williams. Therei is a large part of this gasoline, is 
there not, that is distributed by the integrated companies through 
the regular wholesale jobbers? 

Mr. HoRTON. I so imderstand ; yes. There is some ; I don't know 
the exact percentage. 

Representative Williams. It seems to me that we have had evi- 
dence here that there is a very substantial part of it distributed or 
disposed of in that manner. Have you had any complaint from those - 
people about discrimination ? 

Mr. HoRTON. Yes ; we have had. 

Representative Williams. You have had complaints of the jobbers 
not having received, I will say, fair treatment on the part of the 
individual companies from which they buy ? 

Mr. HoRTON. Yes ; the Commission has received such complaints. 

The Vice Chairman. Is that complaint that they give advantage 
to a competitor engaged in wholesale distribution, as distinguished 
from complaint as to the disadvantages under which these wholesale 
distributors generally operate? 

Mr. HoRTON. Complaints of that character have been receivpd by 
the Commission, exactly. 

The Vice Chairman. Which type of complaint? 

Mr. HoRTON. Alleging preferential treatment on the part of the 
major companies of one wholesaler as against another. 

Representative Williams. Have you any evidence there of any 
kind that indicates any substantial quantity of gasoline that is ex- 
changed between different companies and sdld under a different brand 
from what it actually is? 

Mr. HoRTON. We do not have any figures showing the amount of 
gasoline that has been interchanged. I understand that the Depart- 
ment of Justice has some such figures. Am I correct about that? 

Mr. Snyder. You are right. 

Representative Williams. I understand that you have had a com- 

Mr. HoRTON (interposing) . Yes. 

Representative Williams. And the question is whether^or not there 
is any substantial amount of that kind of business going on. It 
seems to me that that is a very serious thing. 

Mr. Snyder. In tables 34, 35, and 36 of appendix I of Part 14-A 
are included the tabulations of the answers obtained by the Depart- 
ment of Justice from the companies on the question of gasoline ex- 

Representatives Williams. Does it indicate anything about the 

Mr. Snyder. The quantities are given here. The quantities are 
small as compared with the total sales of each of the companies. 

Representative Williams. Have you anything there to indicate, 
for instance, over a period of a year, the amount involved? 

» Pp. 7807-7810. 


Mr. Snyder. In 1935- 

Mr. Berquist (interposing). 23,361,000 barrels, of 42 gallons, were 
received by the 19 major companies. 

The Vice Chairman. That wouldn't mean anything, would it, 
unless you know what proportion of ,the distribution it was. 

Kepresentative Williams. Does that mean they received that 
amount of gas from some other company and sold it as theirs? 

Mr. Berquist. They received it and sold it. Some of that un- 
doubtedly was re-formed, or may have been blended with other gaso- 

Representative Williams. Well, I understood, now, if I am cor- 
rect m that, the statement of Mr. Horton was that there was very 
little of that done. 

Mr. HoRTON. I didn't make that statement, I said I had no figures 
on the actual gallonage which had been transferred. 

Representative tVilliams. I didn't just understand you. 

Mr. AviLDSEN. Mr. Berquist, youf questionnaire didn't cover the 
point of getting the galloriage that was resold under a brand name 
in exactly the same condition in which it was received from other 
producers; is that right? 

Mr. Snyder. The original questionnaire sent to eaeh of the major' 
oil companies by our department asked them for the amount of 
gasoline which they had purchased, or which they had received on 
an exchange basis, and sold under their own brands. They gave us 
a figure in each instance showing the origin of the gasoline, a state- 
ment in each letter which was practically uniform from all the com- 
panies was that some of the gasoline was sold without any further 
treatment whatever, that some of it was re-formed or blended, but 
they did not give what percentage was re-formed or blended. They 
avoided giving the comparable data on which you could make such 
an analysis.^ 

Mr. Berquist. In other instances it was noted that it was purchased 
on a specification basis, and in some cases it was stated that it was 
sold as received from the selling company, under their own brand. 
The data derived from the questionnaire are tabulated in tables 34, 
35, and 36 of Appendix I, of Part 14r-A. 

Representative Williams. I find on pa^e 31 the statement which 
I referred to a while ago, which is my understanding. Under sub- 
section 7: 

According to the Commission's information, gasoline so exchanged is not 
usually processed further by either party to the exchange and is sold under the 
brand names of the respective marketing companies * * *. 

That is why I asked the question a while ago if it was not the 
usual practice for them to resell it without re-forming it or refining 
it further. 

Mr. HoRTON. To the best of our information it is not usually re- 
processed, although there have been statements made before this 
committee, as I understand it, that certain companies dp process the 
gasoline further after it has been secured from another company. 

The Vice Chairman. Are there any further questions, gentlmen? 
If not, we will have the next witness. 

1 Photostatic copies of answers to the Committee questionnaire on exchanges of gasoline 
were admitted to the record on October 23, 1939, as "Exhibit No. 1321." See Hearings, 
Part 17, appendix, p. 9864. 


I understand that the committee desire to recess until 2 : 15. We, 
therefore, shall stand in recess until 2 : 15. 

(Whereupon, at 11 : 55 a. m., a recess was taken until 2 : 15 p. m. 
of the same day.) 


The hearing was resumed at 2 : 35 o'clock, upon the expiration of 
the recess, the vice chairman presidmg. 

The Vice Chairman. I believe a quorum of the committee is not 
present at "the moment. Senator O'Mahoney is expected in a very 
few minutes. 

(Senator O'Mahoney assumed the Chair.) 

The Chairman. Mr. Snydpr, have you any suggestions? Is this 
the witness, Mr. Schuh? 


Mr. Beedt. Mr. Chairman, are we now in session ? 

The Chairman. The committee has been called to order, I assume. 

Mr. Beedt. I think that is correct. 

Mr. Chairman and members of the committee, my name is Carroll 
L. Beedy. Mr. Thomas Jenks, who appears here with me, and I, are 
members of the firm of Alvord & Alvord. We appear for Mr. Schuh. 

The Chairman. You mean you are lawyers? 

Mr. Beedt. That is correct. We so hold ourselves out to the public, 
Senator. We are still studying law, as every good lawyer should. 

I wanted to make this statemient and then leave it in the lap of 
the gods for a decision of what is fair and proper. JMr. Schuh 
was subpenaed at about 10 o'clock Saturday morning in Milwaukee. 
Before he could bethink himself as to what was the first step to 
be taken, it was afternoon, and we here are an hour ahead of time- 
pieces there in Milwaukee, so that I take it it was around 2 o'clock, 
half past 1 to 2, before he bethought himself to contact some 
lawyer. In the meantime it so happened that he had contacted a 
personal friend of mine and of Mr. Alvord, who is the senior mem- 
ber of our firm, and our firm had been recommended. He could not 
then reach us, and he thought it was the best thing to catch an early 
train and coQie here himself, which he did, and this morning at about 
quarter of 10, or near 10, he got in touch with our office. 

I have just emerged from the dental surgeon's knife, a rather severe 
operation, which makes it very difficult for me to talk. I was not 
in our office when Mr. Schuh came in. I arrived at the office about 12 
and for the first time was informed that I would have to look after 
Mr. Schuh. Our Mr. E. C. Alvord being in New York it was impos- 
sible for him to be here. 

I say this, and I say it without any attempt to exaggerate, I am not 
very strong as a result of what I have been through, since the whole 
mucous membrane of my mouth and throat has been very much dis- 
turbed, and I have a mouthful of concrete, it seems to me. I have 
had, as you will see, no time whatever to confer with my client ex- 
cept three-quarters of an hour or thereabouts while we were lunching 
and about 10 or 15 minutes, say an hour aU together in the office. 

124491— 40— pt. 16, sec. 3 21 


I do feel that this matter is of some importance as I get a cursory 
glimpse of it, and it seems to me that the witness should have advice 
of counsel. 

I am wondering if the committee would entertain my motion for a 
continuance of at least 3 or 4 days when I am sure I shall regain my 
strength and be able to appear here, and also inform myself some- 

The Chairman (interposing). Sir, this is not a court proceeding. 

Mr. Beedt. I understand perfectly. 

The Chaerman. I think you were once a Member of CJongress. 

Mr. Beedt. That is true. 

The Chairman. I suppose you are aware of the fact that witnesses 
who are called before committees of this kind don't have any right, 
as it were, to depend uj)on counsel. This witness has been sub- 
penaed here by this Tjommittee. I think he was notified by telephone 
on Thursdayj and the subpena itself was served upon him on Friday. 
That was Friday the 13th, though I hope no inference is to be drawn 
from that, but we have had no witness yet called before this com- 
mittee who deemed it necessary to be represented by counsel in the 
way that you spem^to be proceeding. I am sure the . committee is 
disposed to permit Mr, Schuh to have time to prepare himself , but 
the facts certainly must be pretty simple. 

Mr. Beedt. My understanding of the situation is this, and what 
the Senator has said I quite agree with. I have in my hand a copy of 
the Public Resolution No. 123, Seventy-fifth Congress, which sets 
forth the powers of committees and rights of witnesses, generally 
speaking, and section 859 of that act you are undoubtedly familiar 
with [reading] : 

No testimony given by a witness before either House, or before any committee 
of either House^ or before any joint committee established by a joint or con- 
current resolution of the two Houses of Congress, shall be \ised as evidence 
in any criminal proceeding in any court against "him except in a prosecution 
for perjury committed in. giving such testimony — 

and so forth. — - 

Now if any conclusion is to be drawn from the testimony 
foregoing the appearance of Mr. Schuh as to what transpired at a 
certain meeting in Kansas City in January last, I would say that it 
might raise a question